A federal court of appeals held out the possibility that insider trading prohibitions – at least under the classic theory – do not apply to mutual fund redemptions.

The U.S. Court of Appeals for the Seventh Circuit recently reversed and remanded a summary judgment granted to the Securities and Exchange Commission (SEC) in a case alleging that a mutual fund’s chief compliance officer (CCO) improperly redeemed fund shares while in possession of material non-public information. The court directed the district court to address the novel issue of whether Section 10(b) of the Securities Exchange Act of 1934 applies to insider trading in mutual fund shares.