The Supreme Court just told shareholders that if they have a problem with how their investment fund is governed, they should take it up with the SEC, not a courtroom.

In a 6-3 decision handed down on June 11, the Court ruled in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. that Section 47(b) of the Investment Company Act of 1940 does not grant shareholders an implied private right to sue registered investment companies over alleged governance violations.

What happened and why it matters

The case traces back to activist investor Saba Capital, which challenged bylaw provisions adopted by closed-end funds affiliated with FS Credit Opportunities. Those bylaws restricted voting rights for major shareholders, which Saba argued violated Section 18(i) of the Investment Company Act, a provision requiring equal voting rights.

Saba wasn’t alone in this fight. Similar challenges had been mounted against comparable funds run by BlackRock, creating a pattern of activist investors using litigation as a governance lever.

The Second Circuit had sided with Saba, recognizing an implied private right of action under Section 47(b). Other circuits disagreed. That split is exactly the kind of legal mess the Supreme Court exists to clean up.

Justice Amy Coney Barrett authored the majority opinion, overturning the Second Circuit and resolving the split decisively in favor of the funds. The ruling’s logic is straightforward: Congress didn’t explicitly create a private right of action in Section 47(b), and the Court isn’t going to invent one.

Oral arguments were held back on December 10, 2025, giving the justices roughly six months to land on what amounts to a structural rebalancing of power in investment fund governance.

The Investment Company Act, explained

The Investment Company Act of 1940 governs registered investment companies, including mutual funds and closed-end funds, setting rules around everything from capital structure to shareholder voting.

Section 47(b) of the Act allows courts to void contracts that violate the statute. The question at the heart of this case was whether that section also gives individual shareholders the right to bring lawsuits, or whether enforcement belongs exclusively to the SEC.

The Second Circuit recognized such a right in 2019, which caused a split among circuit courts and emboldened activist shareholders to invoke these claims against various governance measures, seeking to challenge and overturn bylaws perceived as anti-takeover.

What this means for investors

For fund managers, this is a significant win. The elimination of private lawsuits under Section 47(b) removes a meaningful litigation risk. Funds can now adopt defensive bylaws with considerably less fear that an activist investor will haul them into federal court.

For activist investors, the calculus just got harder. One of their most potent weapons, the ability to challenge bylaw changes in court, has been taken off the table under this particular statute. Future campaigns against closed-end funds will need to rely on different legal theories, direct negotiation, or proxy fights rather than Section 47(b) litigation.

The ruling also concentrates enforcement authority in the SEC, which reaffirms SEC enforcement as the primary mechanism for dealing with shareholder complaints about fund governance violations.