MFDF Files Amicus Brief in Closed-End Fund Supreme Court Case

On September 3, the MFDF submitted an amicus brief to the Supreme Court in the case of FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. The Supreme Court granted certiorari to determine whether there is an implied private right of action in Section 47(b) of the Investment Company Act of 1940 (“ICA of 1940”). In agreeing to hear the case, the Supreme Court would resolve a split between the Second Circuit Court, and three other U.S. Circuit Courts (the Third, Fourth, and Ninth Circuit Courts) on the interpretation of Section 47(b). Section 47(b) of the ICA of 1940 states that contracts that are in violation of any part of the Act are unenforceable. Finding an implied private right of action in that section of the statute potentially would allow shareholders to sue to nullify contracts that govern all aspects of a fund’s operations. 

MFDF believes that recognition of such an implied private right of action would undermine the role of fund independent directors, is contrary to Congress’ intention in the 1940 Act, and would potentially open funds to excessive litigation. The brief emphasizes the role of fund independent directors in representing the interests of shareholders and underscores that the 1940 Act protects shareholder interests through director oversight rather than through private right of action. MFDF maintains that fund directors should be allowed to conduct their oversight without being second guessed by shareholders, for potentially very minor statutory violations. Furthermore, an expansive implied private right of action would also undermine the proper role the SEC has in overseeing the fund industry.

In addition, the brief reasons that Congress did not create a private right of action in Section 47(b). MFDF does not believe that the language of the statute clearly creates a private right of action in this case – as compared with Section 36(b) that does contain explicit rights creating language. Finally, the brief emphasizes the disruption to the industry that finding a private right of action in this case would cause. The case is scheduled to be heard later this year. MFDF appreciates the work of Dechert LLP in helping craft and submit the brief.

Click here to read MFDF’s amicus brief in the FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd.