US Supreme Court rules against private suits under key securities law

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.

The ruling eliminates what’s known as an “implied private right of action” under Section 47(b). For years, courts had interpreted that section as allowing investors to seek rescission, essentially the unwinding, of agreements they believed violated the law. The Supreme Court has now said that reading was wrong.

Three justices dissented, pointing to legislative history that they argued supported allowing private actions.

Why this matters beyond one case

This ruling fits into a much broader pattern at the Supreme Court: systematically narrowing the circumstances under which private citizens can sue under federal statutes without Congress explicitly saying they can.

For activist investors, this is a significant strategic blow. Closed-end funds have long been a battleground for shareholder activism, with investors challenging everything from management fees to voting structures. Private lawsuits were one of the most powerful tools in that arsenal.

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