ACTIVISM AS ENFORCEMENT: WILL SHAREHOLDERS GAIN A PRIVATE RIGHT UNDER THE ICA?
In December 2025, the US Supreme Court will decide a circuit split over whether section 47(b) of the Investment Company Act of 1940 (ICA) provides a private right of action for shareholders.
With the Second Circuit on one side of the circuit split, and the Third and Ninth Circuits on the other, shareholders of ICA-regulated firms across the country stand to win or lose (and so do ICA regulated companies).
The case is FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd (Supreme Court No. 24-345), with oral argument scheduled for 10 December 2025.
The ICA
The ICA governs closed-end funds, mutual funds and other registered investment companies, and is enforceable by the Securities and Exchange Commission (SEC). Generally speaking, the ICA is not enforceable by private parties (with some narrow exceptions).
In 2019, however, the Second Circuit held that section 47(b) creates a private right of action for a party to a contract that violates the ICA to seek rescission of that violative contract (see Oxford University Bank v. Lansuppe Feeder, LLC (2019).
Section 47(b) of the ICA states that “[a] contract that is made, or whose performance involves, a violation of [the ICA]… is unenforceable by either party”, and “[t]o the extent that a contract described in paragraph has been performed, a court may not deny rescission at the instance of any party” unless denial would be more equitable than its grant and would not be inconsistent with the purposes of this subchapter.
The case before the Supreme Court
The petitioner manages closed-ended funds registered under the ICA. The respondent, Saba Capital, holds shares in each of the petitioners’ funds.
Jan-Mar 2026 issue
McDermott Will & Schulte LLP