This section contains the nature of the case and procedural background.

Jensen (D) was the CEO and Tekulve (D) was the CFO of Basin Water. P alleges that beginning in Basin's first quarter as a public company and ending with the end of the 2007 fiscal year, Ds engaged in a scheme to fraudulently overstate the company's financial results. Ds violated GAAP by recognizing revenue from sales that were contingent or had not yet been finalized, revenue from loans made to Special Purpose Entities (SPEs), which used that money to purchase water treatment units from Basin with no reasonable expectation that the SPEs would ever repay such loans. Ds also received several hundred thousand dollars of incentive-based compensation, in the form of salary and bonuses, and equity-based compensation, in the form of shares of Basin stock, during the period in which they were allegedly causing Basin to inflate its revenues fraudulently. P alleges that Jensen (D) had sold his Basin stock based on material nonpublic information, realizing some $9,000,000 in profit. After Ds left the company in 2008, Basin restated its financial statements for 2006 and 2007. Basin's stock price fell substantially after the company's announcement that restatement might be necessary. P sued Ds. The district court granted partial summary judgment for Ds on P's claims under Exchange Act Rule 13a-14. After a bench trial, the district court found in favor of Ds on all remaining counts, concluding that 'revenue was properly recognized' on all the transactions at issue, and that they 'had economic substance.' The court also found that the SEC had failed to show that Jensen (D) had sold any of his Basin shares in reliance on insider information. This appeal followed.

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