In its July 22, 2013 opinion in SEC v. Bauer, the U.S. Court of Appeals for the Seventh Circuit reversed the decision of the district court which had granted summary judgment in favor of the SEC in a case involving alleged insider trading by the general counsel and chief compliance officer of Heartland Advisors, Inc., which acted as the principal underwriter and distributor of the shares of funds issued by Heartland Group, Inc., an open-end management investment company. On appeal, the threshold issue in the case was whether and to what extent insider trading theories apply to mutual fund redemptions. The Court of Appeals noted that the case presented novel questions of law because no federal court has opined on this question. In the proceedings before the district court, the SEC had argued that the defendant was a “traditional insider” and invoked the “classical theory” of insider trading. Under the classical theory, insiders of the corporation, such as officers, directors and employees of the issuer can be held liable because they have a fiduciary duty to the issuer and its shareholders. On appeal, the defendant argued that mutual fund redemptions cannot entail the type of deception of the counterparty on which the classical theory is based, because the counterparty to the transaction is the mutual fund issuer itself, which presumably is fully informed and cannot be deceived through non-disclosure. Perhaps due to the difficulties involved with its earlier approach, on appeal the SEC argued the case on the basis of the “misappropriation theory” of insider trading. The misappropriation theory extends the reach of Rule 10b-5 under the Securities Exchange Act of 1934 to outsiders of the corporation on the basis that they are using confidential information in breach of a duty owed to the source of the information. Finding that it would be fundamentally unfair to decide the case on the basis of a theory that was not argued before the district court, and due to existence of various issues of fact, the court remanded the case to the district court for further proceedings consistent with the decision.