Supreme Court Rules 6-3 That Private Plaintiffs Cannot Sue Under the Investment Company Act

The Supreme Court ruled Thursday that private parties cannot bring lawsuits under a key federal securities law to void fund bylaws, siding with a group of investment funds affiliated with BlackRock and other major asset managers in a 6-3 decision.

The ruling reversed a lower court's finding that had allowed hedge fund Saba Capital Master Fund to sue under the Investment Company Act of 1940 to invalidate bylaw provisions restricting the voting power of activist shareholders.

At the center of the dispute are so-called closed-end funds — investment vehicles that issue a fixed number of shares and frequently trade below the value of their underlying holdings. The funds involved, which are organized under Maryland law, had adopted bylaw provisions limiting the influence of large shareholders.

Saba Capital, a hedge fund managed by activist investor Boaz Weinstein, owned shares in the funds and brought legal challenges against 11 of them. Saba argued that the disputed provisions violated a section of the Investment Company Act requiring that each share carry equal voting power. It also contended that the law permits private parties — not solely the Securities and Exchange Commission — to seek the removal of corporate bylaws that run afoul of the Act.

A federal judge in New York sided with Saba in 2024, ruling that the "control share bylaws" violated the Investment Company Act and ordering their removal. The New York-based 2nd U.S. Circuit Court of Appeals upheld that ruling, prompting several of the funds to carry the case to the Supreme Court.

Those funds — which include FS Credit Opportunities, Adams Diversified Equity Fund, Adams Natural Resources Fund, and Royce Global Trust — argued that the Investment Company Act contains no so-called "private right of action" allowing such suits to be brought by individual plaintiffs.

The Trump administration backed BlackRock and the other funds in the case.

The justices agreed, reversing the 2nd Circuit and effectively shutting the door on this category of private litigation under the 1940 law. The decision carries significant implications for activist investors, who have increasingly used closed-end fund structures as a venue for shareholder campaigns, and for the funds themselves, which have long sought to limit the disruptive influence of large activist positions.

The ruling reinforces a broader pattern of the current Court narrowing the scope of implied private rights of action under federal statutes — a legal doctrine that determines whether individuals, rather than regulators, can enforce a given law through the courts.

With the SEC retaining exclusive enforcement authority under this framework, the decision shifts the balance of power away from activist shareholders and toward fund managers in disputes over governance structures, signaling a potentially more challenging environment for hedge funds pursuing bylaw challenges through federal litigation.

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