The ruling may see the pleas of 3 men who admitted to insider trading during IBM’s $1.2 billion purchase of SPSS Inc. thrown out by a judge.

According to the U.S. Court of Appeals in New York, traders must be aware that their inside information came from someone who knew it was secret and also gained personal benefit from leaking it. The convictions of 2 hedge fund managers, Todd Newman and Anthony Chiasson, over an alleged $70 million insider-trading scheme were thrown out by the court.

Landmark Appeals Court Ruling Throws IBM Insider Trading Trial Into Doubt

IBM: A complicated case for the prosecution

The information trail in the International Business Machines Corp. (IBM) case is long. Trent Martin received information from a lawyer friend who was working on the deal, which he passed on to roommate Thomas Conradt, who then relayed the tip to stockbrokers Daryl Payton, Benjamin Durant and David Weishaus.

Martin is a former analyst at Royal Bank of Scotland Group Plc., while Payton, Conradt and Weishaus used to work for Euro Pacific Capital Inc..

The more steps there are in the transmission of information, the harder it becomes to prove that the parties were aware that their informant would receive a benefit. As a result of the appeal court ruling, U.S. District Judge Andrew Carter said that was leaning towards throwing out Martin’s, Conradt’s and Weishaus’s guilty pleas. Government prosecutors objected, and Carter said that he would withhold his judgment until they had submitted papers presenting their case.

A month-long delay

Durant’s trial was scheduled to start on January 12, and the defendant had pleaded not guilty. Judge Carter claimed that there were serious issues with the cases against the 5 men, and he is also considering vacating Durant’s plea, pending the prosecutors’ decision on a further appeal.

“Given all that is going on we think it makes sense to request a short adjournment and consider the legal implications of this case,” Assistant U.S. Attorney Jessica Masella said.

Judge Carter will review Payton’s guilty plea later today. The former trader is due to be sentenced on March 5.

The case is U.S. v. Martin, 12-cr-00887, U.S. District Court, Southern District of New York (Manhattan). The judgment could have serious legal implications for future insider-trading cases.