By John Kruzel
WASHINGTON, June 11 (Reuters) – The U.S. Supreme Court sided on Thursday with a group of investment funds affiliated with BlackRock and other asset managers in their bid to fend off certain lawsuits brought by private plaintiffs under a key federal securities law.
The Supreme Court, in a 6-3 decision fueled by its conservative majority, reversed a lower court’s ruling that let hedge fund Saba Capital Master Fund sue under the Investment Company Act of 1940 to void fund bylaws restricting the voting power of activist shareholders.
Conservative Justice Amy Coney Barrett, who authored the ruling, wrote that the Investment Company Act, or ICA, does not authorize private parties to bring suits seeking the rescission of bylaws or other contractual terms.
“In sum, nothing in the text or structure of the ICA indicates that Congress authorized private parties to enforce virtually every provision in the statute,” wrote Barrett, whose opinion was joined by her five fellow conservatives.
The court’s three liberal justices dissented.
President Donald Trump’s administration backed BlackRock, FS Credit Opportunities and other funds involved in the case, including Adams Diversified Equity Fund, Adams Natural Resources Fund and Royce Global Trust.
The investment funds at issue are so-called “closed-end funds,” which issue a fixed number of shares and frequently trade for less than the value of their underlying holdings. The funds, which are organized under Maryland law, adopted bylaw provisions that restrict the voting power of large shareholders.
Saba, a hedge fund managed by activist investor Boaz Weinstein that owns shares in the investment funds, brought legal challenges against 11 such funds.
It alleged that the disputed bylaw provisions violated part of the Investment Company Act requiring that each share carry equal voting power. It also argued that the law allows private parties – not just the U.S. Securities and Exchange Commission, or SEC – to bring suits seeking to void corporate bylaws or other contractual terms that violate the Investment Company Act.
A federal judge in New York sided with Saba, ruling in 2024 that the so-called “control-share bylaws” violated the Investment Company Act and must be removed. The New York-based 2nd U.S. Circuit Court of Appeals upheld the judge’s ruling.
This prompted the ultimately successful appeal by the funds to the Supreme Court on the grounds that the Investment Company Act does not contain a so-called “private right of action” for such suits.
Stephen Sypherd, general counsel of Future Standard, the parent asset manager of one of the funds that prevailed in the case, said Thursday’s ruling represented “a clear win for investors,” enabling closed‑end funds “to continue operating in the best interests of long‑term shareholders.”
Weinstein, of Saba Capital, said the ruling “puts the burden squarely on the SEC” to crack down on control-share provisions that allegedly violate the Investment Company Act.
“The evidence of shareholder harm is overwhelming,” Weinstein said. “The SEC has no excuse not to act.”
(Reporting by John Kruzel; Editing by Will Dunham)
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