The $30 Trillion Question: Will the Supreme Court Empower Activist Investors?

Varun Mekala

December 2025

Get ready for a legal drama that's setting Wall Street on edge! Rarely does the Supreme Court's docket feature cases that directly impact the daily skirmishes between high-powered hedge funds and corporate boards, but FS Credit Opportunities Corp. v. Saba Capital Master Fund (24-345) is just that. This isn't about esoteric law; this is about who gets to keep whom honest in the $30 trillion investment fund industry. 

The core fight? Whether activist investors, like powerful Saba Capital, can personally sue closed-end funds for violating federal law, or if the power to enforce those rules rests only with the government. 

This controversy spins out of the Investment Company Act of 1940 (ICA), the bedrock statute governing U.S. investment funds. The key provision at issue is Section 18(i), which is simple but powerful: it dictates that every share of a registered fund must have "equal voting rights" with every other share. Saba Capital, which specializes in agitating funds that trade below their net asset value (NAV), sued FS Credit and others. Why? Because these funds adopted provisions-often via the Maryland Control Share Acquisition Act (MCSAA)-that stripped voting rights from any investor who bought more than 10% of the stock without board approval.

Saba argued this move was a blatant violation of the "equal voting rights" mandate of Section 18(i). 

It was an anti-takeover defense designed to neutralize their power. The Legal Landmine: Implied Private Right of Action The lawsuit quickly ran into a severe legal hurdle. The ICA, like many federal laws, doesn't explicitly state: "Any investor may sue a fund for violating Section 18(i)." Since the 1970s, the Supreme Court has become deeply skeptical of creating "implied private rights of action"-meaning, allowing private citizens to sue based on a statute that doesn't expressly give them that right. Saba's successful argument in the lower courts rests on a different section: Section 47(b). That is, it states that any contract made in contravention of the ICA is "unenforceable" and allows for its "rescission at the instance of any party."

That "rescission at the instance of any party" gives any shareholder the unequivocal right to march into court and request that a judge nullify the offending anti-takeover provision. This provides a powerful check on fund management. FS Credit’s View: Section 47(b) is purely a defensive measure. You can use it to argue against enforcing an illegal contract, but you can’t use it as the basis to commence the whole lawsuit. This camp believes that Congress intended the SEC to be the exclusive enforcer of these rules. 

If the Supreme Court sides with Saba Capital and upholds the implied right to sue, the Floodgates Open. Activist investors are handed a powerful, self-effectuating mechanism to police closed-end funds, lodging a challenge against management’s attempts at entrenchment through bylaw changes and anti-takeover schemes. 

Fund boards will need to tread very carefully, since any governance measure may trigger an expensive and immediate private lawsuit, rather than waiting for slow, resource-constrained SEC action. If the Court sides with FS Credit and rejects the implied right: SEC is the Only Cop: Private enforcement-which is important as a check on regulatory capture and slow government action-is severely curtailed. Fund Defenses Strengthened: Fund boards are given a significant shield against activist pressure. They can adopt quite robust defensive measures, knowing the primary challenge will have to come through the SEC, which makes it much harder for shareholders to force change. The decision in FS Credit v. Saba won't only affect the parties to it; it is going to let loose either a new era of private shareholder accountability or reaffirm the status quo where the vast power of fund management is balanced only by the federal regulator.