The

United States Supreme Court

grappled with whether to let investors broadly use an 85-year-old law to sue funds over their

management decisions

in a case being closely watched on

Wall Street

.

Hearing arguments Wednesday in Washington, the justices questioned a lower court ruling that let

activist investors

sue 11

closed-end funds

, including some affiliated with FS Credit Opportunities Corp. and

BlackRock Inc.

The suing investors are led by hedge fund manager Boaz Weinstein’s Saba Capital Master Fund.

At issue is whether the 1940 Investment Company Act authorizes

private lawsuits

for most violations. The closed-end funds appealed after the 2nd U.S. Circuit Court of Appeals said the law contained a so-called private right of action letting investors sue.

The 80-minute Supreme Court session didn’t give a clear indication about the likely outcome, with potentially pivotal Justice Brett Kavanaugh calling the case “extremely close.”

Saba is trying to use the ICA to challenge the funds’ invocation of a Maryland law that lets controlling shareholders block other investors from acquiring more than a 10 per cent voting share.

Saba says the Maryland “control-share” law lets underperforming funds escape accountability, while FS and BlackRock say it helps funds take a long-term view, protecting them from arbitragers seeking short-term profits.

Activist investors typically accumulate stakes in companies and then push for change by trying to gain seats on the board, often clashing with fund managers like BlackRock and FS.

The ICA is designed to protect investors in a variety of ways, including registration and disclosure requirements. The provision Saba is seeking to invoke says that each share of a fund generally shall have “equal voting rights with every other outstanding voting stock.”

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—With assistance from Jef Feeley.

Bloomberg.com