Some folks—especially those living in the states governed by the U.S. Court of Appeals 2nd Circuit—might believe that it's now okay to relax corporate insider trading policies. But don't do it.

Why would anyone even consider loosening up a corporation's insider trading policy? After all, the Securities and Exchange Commission (SEC) has had a string of conviction victories for insider trading tipper/tippee liability, including the high-profile conviction of former Goldman Sachs director Rajat Gupta.

The answer is the surprising victory the 2nd Circuit handed the defendants in United States v. Newman in 2014.

This decision came after a years-long court battle. Defendants Todd Newman, formerly of Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors, were sentenced to jail time for allegedly trading on material, non-public information as tippees, in violation of federal securities laws.

These hedge fund portfolio managers traded on material non-public information that was given to them by their analysts. The information was originally shared amongst a group of analysts from different hedge fund firms via email.

You may be wondering why these analysts would trade tips with their competitors. According to one Bloomberg article, an ex-analyst for Diamondback Capital Management, Jesse Tortora, testified that it “allowed us to be more effective, more efficient and more profitable than working alone.”

So, were Newman and Chiasson guilty of violating the rules against insider trading under a theory of tippee liability?

To the surprise of many, the 2nd Circuit said no. The court held that for tippee liability to exist, the tipper must have gained substantial personal benefit from giving the tip, and the tippee must have knowledge about that substantial personal gain.

In Newman, the 2nd Circuit declared there wasn't sufficient evidence to show that the defendants had knowledge that the tippers gained personal benefit, nor was there a case to show that the tippers gained substantial personal benefit at all. The fact that the defendants were far removed from the original source of information no doubt helped the court reach this conclusion.

The government tried to show that there was a personal benefit afforded to the source of information in the form of friendship and career counseling. The court was not impressed by the government's reasoning, explaining that under this logic “practically anything would qualify” as a benefit. In addition, there was no proof the defendants believed that the original tippers had gained any personal benefit in exchange for the information they supplied.

Even so, this case should not be taken as encouragement to loosen up corporate insider trading policies.

First of all, the 2nd Circuit only represents a handful of states. Other states may decline to follow Newman. Second, the government is appealing the Newman decision, so it may not remain the law of even the 2nd Circuit. Third, the SEC filed an amicus brief in support of the plaintiff's appeal on the matter.

In February, the head of SEC's enforcement division, Andrew Ceresney, was quoted as saying that he wasn't too worried about the decision. In fact, according to one report, he said that the SEC could adapt to the ruling, and that the agency holds a lower burden of proof when it comes to these matters versus criminal prosecutors.

Finally, the “win” isn't getting an acquittal after years of expensive litigation. The real win is never having to defend your behavior in a court of law.

Conservative corporate insider trading policies and appropriate training can help your employees achieve this real win by not engaging in a transaction that may draw regulatory scrutiny.