The US Supreme Court just closed a door that investors have been walking through for decades. In a 6-3 ruling, the Court decided that Section 47(b) of the Investment Company Act of 1940 does not give private parties the right to sue for rescission of contracts they believe violate the statute.
What the Court actually decided
The case, FS Credit Opportunities Corp. v. Saba Capital Master Fund, centered on a fight between activist hedge fund Saba Capital and a group of BlackRock-affiliated investment funds. Saba had challenged bylaws in those funds that restricted shareholder voting rights, arguing the bylaws violated the Investment Company Act’s equality requirements.
A lower court had sided with Saba, allowing the lawsuit to proceed. The Supreme Court reversed that decision.
Justice Amy Coney Barrett authored the majority opinion. The core argument: Congress never intended for private parties to enforce the Investment Company Act. That power belongs to the Securities and Exchange Commission.
