Supreme Court limits shareholder suits against BlackRock-affiliated funds

Private investors now have a narrower path to challenge closed-end fund governance, a shift that could make it harder to attack bylaws and Maryland control-share rules designed to limit the voting power of large shareholders. In a 6-3 ruling, the Supreme Court said Section 47(b) of the Investment Company Act of 1940 does not impliedly authorize private suits seeking rescission of allegedly unlawful contracts, closing off a tactic activist funds have used in fights over fund control and returns.

The case, FS Credit Opportunities Corp. et al. v. Saba Capital Master Fund, Ltd. et al., No. 24-345, grew out of a June 2023 suit brought by Saba Capital Master Fund, Ltd. against investment funds that included FS Credit Opportunities Corp. and other closed-end vehicles. Saba challenged bylaws and Maryland control-share provisions that restricted the voting rights of shareholders who accumulated disproportionate stakes. The funds, which trade on the open market with fixed shares, often sell at discounts to the value of their underlying holdings, making them attractive targets for activists seeking board influence or a narrower gap between price and net asset value.

Justice Amy Coney Barrett wrote for the majority, joined by the court’s other five conservative justices. The opinion said the Investment Company Act designates the Securities and Exchange Commission as its primary enforcer and expressly provides private enforcement only for two provisions. That structure, the court held, does not support a broad private right to seek rescission under Section 47(b). The three liberal justices dissented. The justices heard argument on December 10, 2025, after granting review on June 30, 2025.

The ruling resolves a circuit split over whether Section 47(b) creates an implied private right of action and gives the asset-management industry more certainty as it faces repeated pressure from activist firms such as Saba, led by hedge fund manager Boaz Weinstein. The Trump administration backed the funds, and the United States, through the Solicitor General, urged review in May 2025, arguing the issue had divided the courts of appeals. The Investment Company Institute welcomed the decision on June 11, 2026, saying Section 47(b) does not create an implied private right of action.

Saba said it would pursue other legal avenues, including other provisions of the 1940 Act and state law. For closed-end funds, the practical result is clear: federal rescission claims are harder to bring, and more of the accountability burden may shift toward regulators already stretched across the securities markets.