The U.S. Securities and Exchange Commission was dealt a serious blow on Wednesday in the first ruling to involve an insider trading case brought against a former hedge fund salesman who used a certain type of unregistered stock to “hedge” a short sale.

The case is one of about a dozen that the SEC has brought alleging that hedge funds, or their managers, have used Private Investment in Public Equity (PIPE) transactions, which are private sales of unregistered stock in public companies, to hedge short sales of those same companies. The SEC has maintained that such activities violate §5 of the Securities Act of 1933, which prohibits the sale of unregistered securities.