[JURIST] A Manhattan federal judge Monday overturned a federal bankruptcy court's highly-controversial decision in the Enron [JURIST news archive] case, ruling that holders of claims against a bankrupt company should have their claims extinguished if they purchased them from a seller who used "inequitable conduct." US District Judge Shira Scheindlin found that federal bankruptcy rules were only intended to extinguish the claims of holders who knew of the seller's bad conduct when they made their purchase and should not be used to punish "good faith" claim-holders.

Numerous financial organizations and associations, including Merrill Lynch and Co. [corporate website], the Bond Market Association [trade website], the International Swaps and Derivatives Association [trade website], had filed papers criticizing the bankruptcy court ruling, fearing that it could destroy the $500 billion distressed-debt market and also injure the stock market as a whole. AP has more.