Without much fanfare, a federal appeals court recently ruled that two hedge fund managers — Todd Newman and Anthony Chiasson — could remain free on bail as they seek to overturn the insider-trading convictions that could land them in jail for years.

The decision by the U.S. Court of Appeals for the Second Circuit was laid out in three sentences last month. But granting bail may be a sign that the court sees substantial issues with the conviction, legal experts said.

How it resolves those issues could clarify the standards of liability for a tippee — the person who receives a tip in an insider-trading case, and affect some blockbuster cases and investigations that are winding their way through the legal system, the experts said.

“This could have enormous implications for hedge funds and other institutional traders,” said Adam Pritchard, law professor at the University of Michigan Law School in Ann Arbor. “It could also have important implications for the evidence that the government needs to put forward to prove insider trading.”

The Justice Department and the Securities and Exchange Commission have cracked down on insider trading in recent years, with U.S. Attorney Preet Bharara in Manhattan filing charges against 81 defendants since he took office in 2009 and convicting 73 of them, including Newman and Chiasson.

Anthony Chiasson, co-founder of Level Global Investors LP, exits federal court following a sentencing hearing in New York on May 13, 2013. (Peter Foley/BLOOMBERG)

At issue in their case is the standard for convicting a tippee.

In an 1983 decision, the Supreme Court ruled that it is not illegal for a tippee to obtain confidential information about a company and trade on it. But it is wrong to trade if he or she knows that the tipper received a “personal benefit” for disclosing the information — whether it be cash or the satisfaction of helping a friend.

The court included the personal-benefit test to distinguish garden-variety insider trading from the work of stock analysts, for instance, who regularly collect information from many sources without paying for it, Pritchard said.

Newman and Chiasson said that U.S. District Judge Richard J. Sullivan in Manhattan erred when he failed to instruct the jury to apply this standard to them, and they’re fighting to overturn their convictions.

Prosecutors accused the two of being part of a “criminal club” of portfolio managers and analysts who obtained inside information directly or indirectly from employees at public companies, including Dell and Nvidia.

Newman, a former portfolio manager at Diamondback Capital Management, was to start serving his 4 1/2-year prison sentence Monday. Chiasson, his co-defendant and a founder of Level Global Investors, was sentenced to 6 1/2 years and was scheduled to report to prison on Aug. 13.

But Newman and Chiasson are now arguing that Sullivan should have told the jury that in order to convict them, it had to find that they knew that the information they received came from corporate insiders who disclosed it in breach of their duty and for personal gain.

The personal-gain element is key, Newman and Chiasson argued. They say they were far down the information-gathering chain and the tip was passed along by other people before it reached them. They maintain that they did not know the circumstances behind the original tips or that the insiders were fraudulently profiting from their disclosures.

The issue resurfaced when Newman and Chiasson asked for bail.

Sullivan denied their request. He cited an appeals court case from last year that he said makes clear that in order to be liable, a tippee has to know there was a breach of duty, but does not have to know that the tipper passed along the information for his or her own benefit.

Newman’s and Chiasson’s lawyers appealed. In court documents, Chiasson’s attorneys argued that the personal-benefit issue is an unsettled area of law. Sullivan interpreted it one way, they said. Five other courts interpreted it another way.

“Thus, until this appeal is decided, some defendants’ fates will turn entirely on the identity of the judge to whom their case is assigned,” Chiasson’s lawyers wrote.

On June 18, the U.S. Second Circuit Court of Appeals decided to grant Newman and Chiasson bail.

“Bail pending appeal on a criminal case is not routinely granted, so the fact that the court did grant it here at least suggests that they thought there were substantial legal issues being raised,” said Thomas O. Gorman, a lawyer at Dorsey & Whitney.

The same appeals court will be deciding if the convictions will be upheld and will address the legal question: To be liable for insider trading, does a tippee need to know if the tipper received a personal benefit?

The legal issues have huge resonance for one of the highest-profile insider-trading investigations the government has going, that of hedge fund billionaire Steven Cohen.

Federal prosecutors have less than a month to decide whether to charge Cohen in what they have described as the most lucrative insider-trading scheme of all time. The five-year statute of limitations is about to run out on that case, which involves one of Cohen’s portfolio managers, who allegedly received secret tips about the results of a clinical drug trial.

Prosecutors have not accused Cohen of wrongdoing. Proof of knowledge is perhaps the government’s biggest stumbling block in making a case against Cohen, Gorman said.

“They are probably looking hard at what exactly (Cohen) had to know about the source of the information,” Gorman said. “The less he has to know about the source of the information, the easier the burden for the prosecution.”

Alice Crites contributed to this story.