The Supreme Court just made it significantly harder for shareholders to drag regulated investment companies into court. In a 6-3 decision issued on June 11, the Court ruled that Section 47(b) of the Investment Company Act of 1940 does not grant investors a private right of action, meaning they cannot sue registered investment companies to rescind bylaws or contracts they believe violate the statute.
What happened and why it matters
The case, FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., originated from a fight between activist investor Saba Capital Master Fund and 11 closed-end funds. Saba had challenged bylaws adopted by those funds that capped voting power for larger shareholders, a tactic that effectively insulated fund management from outside pressure.
Saba argued those bylaws violated the Investment Company Act and sued to have them tossed out. A lower court agreed, allowing the private lawsuit to proceed. The Supreme Court reversed that decision entirely.
Justice Amy Coney Barrett authored the majority opinion, joined by the Court’s conservative justices. The core reasoning: Congress never intended for Section 47(b) to serve as an invitation for private litigation. The enforcement mechanism Congress envisioned was the SEC, and the SEC alone.
