US Supreme Court Rejects an Implied Right of Action Under Investment Company Act § 47(b)
6-3 word salad decides only the SEC has enforcement power under the Act
Longtime readers may recall that in December of last year we discussed the oral argument before the Supreme Court in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., a potentially important decision regarding enforcement of the Investment Company Act of 1940.
Shareholder Activism in Closed-End Funds: An Empirical Analysis
On December 10, the US Supreme Court heard oral argument in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. The case involves a circuit split on the question of whether there is an implied right of action under § 47(b) of the Investment Company Act of 1940 (ICA) pursuant to which parties to a contract that violates the ICA may seek rescission of the contract. Granted, compared to most of the cases on the Supreme Court’s docket, this may seem like a minor issue but it actually has considerable commercial importance.
In that post, we also took a deep dive into a paper by my friend and UCLAW colleague Fernan Restrepo, which explored whether the lower court decision finding that an implied private right of action exists had generated an increase in shareholder activism.
Fernan Restrepo, The economic consequences of introducing rescissionary private rights of action in the investment fund industry (December 08, 2025). UCLA School of Law, Public Law Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=5887282 or http://dx.doi.org/10.2139/ssrn.5887282
The Supreme Court today announced its decision, finding by a 6-3 vote that § 47(b) of the ICA does not impliedly empower private parties to sue for rescission of contracts that allegedly violate the Act. (Link to Opinion)
The result is a bit surprising, because the oral argument seemed to favor the plaintiffs’ argument that an implied private right of action exists.
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