Amicus Curiae Brief — FS Credit Opportunities Corp., et al., Petitioners v. Saba Capital Master Fund, Ltd., et al.
Supreme Court briefOct 16, 2025
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No. 24-345
IN THE
Supreme Court of the United States
————
FS CREDIT OPPORTUNITIES CORP., et al.,
v.
Petitioners,
SABA CAPITAL MASTER FUND, LTD., et al.,
Respondents.
————
On Writ of Certiorari to the
United States Court of Appeals
for the Second Circuit
————
BRIEF OF SECURITIES-LAW SCHOLARS AND
FORMER SENIOR SEC OFFICIALS AS AMICI
CURIAE IN SUPPORT OF RESPONDENTS
————
JAMIE CROOKS
Counsel of Record
FAIRMARK PARTNERS, LLP
400 7th Street, NW, #304
Washington, DC 20004
(619) 507-4182
jamie@fairmarklaw.com
Counsel for Amici Curiae
October 16, 2025
WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D.C. 20002
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ................................
iii
INTEREST OF AMICI ........................................
1
SUMMARY OF THE ARGUMENT ....................
4
ARGUMENT ........................................................
6
I. IN HISTORICAL CONTEXT, THE
ORIGINAL AND AMENDED TEXT OF
SECTION 47 REFLECT CONGRESS’S
INTENT TO CREATE A PRIVATE
RIGHT TO RESCISSION .........................
6
A. RIGHTS TO RESCISSION UNDER
VOIDNESS PROVISIONS IN STATE
BLUE SKY LAWS ...............................
6
B. CONGRESS’S
ADOPTION
OF
VOIDNESS TEXT IN EXCHANGE
ACT SECTION 29 AND ICA
SECTION
47
DEMONSTRATE
INTENT TO CREATE A RIGHT TO
RESCISSION .......................................
8
C. SUBSEQUENT LEGAL DEVELOPMENTS REFLECT THE 1940
CONGRESS’S INTENT TO CREATE
A PRIVATE RIGHT TO RESCISSION ....................................................
12
(i)
ii
TABLE OF CONTENTS—Continued
Page
II. ECONOMIC ANALYSIS SUPPORTS
LAWMAKERS’ JUDGMENT THAT
PRIVATE RIGHTS TO RESCISSION
OF CONTRACTS THAT VIOLATE
SECURITIES LAW CAN BENEFIT
INVESTORS .............................................
16
A. PRIVATE RIGHTS TO RESCISSION
CAN BE A DESIRABLE SUPPLEMENT
TO
CENTRALIZED
SECURITIES-LAW ENFORCEMENT
FACING LIMITED RESOURCES
AND INFORMATION .........................
17
B. PRIVATE RIGHTS TO RESCISSION
CAN BE ESPECIALLY BENEFICIAL
WHEN
CLOSED-END
FUND
GOVERNANCE ARRANGEMENTS
MAY VIOLATE THE INVESTMENT
COMPANY ACT ..................................
20
CONCLUSION ....................................................
25
iii
TABLE OF AUTHORITIES
CASES
Page(s)
Aaron v. SEC,
446 U.S. 680 (1980) ...................................
8
Alexander v. Sandoval,
532 U.S. 275 (2001) ............................... 4, 16, 17
Browning v. Morris,
2 Cowp. 790 (1778) ....................................
7
Cummings v. Hotchkin Co.,
197 N.E. 473 (Mass. 1935) ........................
7, 8
Geismar v. Bond & Goodwin,
40 F. Supp. 876 (S.D.N.Y. 1941)...............
10
Hall v. Geiger-Jones Co.,
242 U.S. 539 (1917) ...................................
5
Karamanou v. H.V. Greene Co.,
124 A. 373 (1922) ......................................
7
Mills v. Elec. Auto-Lite Co.,
396 U.S. 375 (1970) ...................................
9
Olmstead v. Pruco Life Ins. Co. of N.J.,
SEC.Br. at 12 (2d Cir. 2002).....................
15
Oxford Univ. Bank v. Lansuppe Feeder, LLC,
933 F.3d 99 (2d Cir. 2019) .............. 6, 13, 14, 19
Saba Capital Master Fund, Ltd. v.
BlackRock ESG Capital Allocation
Term Trust,
Motion to Dismiss, No. 24-cv-01701
(SDNY Apr. 3, 2024) .................................
23
Skidmore v. Swift & Co.,
323 U.S. 134 (1944) ...................................
15
iv
TABLE OF AUTHORITIES—Continued
Page(s)
Tomberlin v. Waycross Com. Hotel Co.,
152 S.E. 300 (Ga. Ct. App. 1930) ..............
7
Transamerica Mortg. Advisors, Inc. v. Lewis,
444 U.S. 11 (1979) .....................................
13
STATUTES
15 U.S.C. § 80a-16(a) ....................................
24
48 Stat. 903 (1934) .......................................
9
52 Stat. 1076 (1938) .....................................
10
54 Stat. 845 (1940) .......................................
12
54 Stat. 846 (1940) .......................................
6
Md. Corp. & Assoc. Code §§ 3-701 – 3-710 ..
23
Pub. L. No. 96-477 (1980) ............................. 13, 14
RULES
U.S. Sec. & Exch. Comm’n, Final Rule,
Exchange Traded Funds,
Rel. No. IC-33646 (Sept. 25, 2019) ...........
20
OTHER AUTHORITIES
2023 SEC Fiscal Year 2023 Agency
Financial Report .......................................
18
3 Louis Loss, Securities Regulation 1759
(2d ed. 1961) ..............................................
5
Albert O. Hirschmann, Exit, Voice, and
Loyalty: Responses to Decline in Firms,
Organizations, and States (1970) .............
20
v
TABLE OF AUTHORITIES—Continued
Page(s)
Charles M.C. Lee, Andrei Shleifer &
Richard H. Thaler, Investor Sentiment
and the Closed-End Fund Puzzle, 46 J.
Fin. 75 (1991) ............................................
21
Dale C. LaPorte, Voidability Provisions
under State Blue Sky Laws, 17 Case W.
Res. L. Rev. 1148 (1996) ...........................
17
H.R. Rep. No. 96-1341, 96th Cong., 2d Sess.
(1980) ......................................................... 14, 18
Henry J. Abraham, Justices and Presidents:
A Political History of Appointments to
the Supreme Court (1992) ........................
8
Henry T.C. Hu & John D. Morley, A
Regulatory Framework for ExchangeTraded Funds, 91 S. Cal. L. Rev. 839
(2018) .........................................................
20
Implying Civil Remedies from Federal
Regulatory Statutes, 77 Harv. L. Rev. 285
(1963) .........................................................
16
John C. Coates IV & R. Glenn Hubbard,
Competition in the Mutual Fund
Industry: Evidence and Implications for
Policy, 33 J. Corp. L. 151 (2007)............... 20, 21
John C. Coffee, Jr., Liquidity Versus
Control: The Institutional Investor as
Corporate Monitor, 91 Colum. L. Rev.
1277 (1991) ................................................
21
vi
TABLE OF AUTHORITIES—Continued
Page(s)
John C. Coffee, Jr., The Regulation of
Entrepreneurial Litigation: Balancing
Fairness and Efficiency in the Large Class
Action, 54 U. Chi. L. Rev. 877 (1987) .......
22
John Morley, Collective Branding and the
Origins of Investment Fund Regulation, 6
Va. L. & Bus. Rev. 341 (2014) ..................
11
John Morley, The Separation of Funds and
Managers: A Theory of Investment Fund
Structure and Regulation, 123 Yale L.J.
1228, 1246 (2014) ......................................
20
Louis Loss, Blue Sky Law 131 (1958) ..........
7
Louis Loss, Securities Regulation 1786
(1983) .........................................................
8
Louis Loss, Securities Regulation 962
(1952) .........................................................
6
Michael Bradley, Alon Brav, Itay Goldstein
& Wei Jiang, Activist Arbitrage: A Study
of Open-Ending Attempts of Closed-End
Funds, 95 J. Fin. Econ. 1 (2010)...............
22
Richard R.W. Brooks & Alexander
Stremitzer, Remedies on and Off
Contract, 20 Yale L.J. 690 (2011) .............
19
Robert L. Matia, Express and Implied Civil
Liability Provisions in State Blue Sky
Laws, 17 Case Western Res. L. Rev. 1173
(1966) .........................................................
7
vii
TABLE OF AUTHORITIES—Continued
Page(s)
Samuel H. Gruenbaum & Marc I. Steinberg,
Section 29(b) of the Securities Exchange
Act of 1934: A Viable Remedy Awakened,
48 Geo. Wash. L. Rev. 1 (1979).................
9
Securities Investor Protection Act of 1991:
Hearing Before the Subcommittee on
Securities of the Committee on Banking,
Housing, and Urban Affairs, 102d Cong.
(1991) .........................................................
18
Susan E.K. Christoffersen, David K. Musto
& Russ Wermers, Investor Flows to Asset
Managers: Causes and Consequences, 6
Ann. Rev. Fin. Econ. 289 (2014) ...............
21
U.S. Sec. & Exch. Comm’n, Commissioner
Richard B. Smith, The Interest of the
SEC in Private Civil Actions Under the
Securities Acts (remarks to the State
Bar of California, Los Angeles, January
1968) ..........................................................
10
U.S. Sec. & Exch. Comm’n, New York
Stock Exchange LLC, Notice of Filing of
Proposed Rule Change Amending Section
302.00 of the NYSE Listed Company
Manual to Exempt Closed-End Funds
Registered Under the Investment Company
Act of 1940 from the Requirement to Hold
Annual Shareholder Meetings, 89 Fed.
Reg. 56447 (2024)......................................
23
U.S. Sec. & Exch. Comm’n, Study on Investment Trusts and Companies (1940) .........
11
viii
TABLE OF AUTHORITIES—Continued
Page(s)
Validity of Contracts Which Violate
Regulatory Statutes, 50 Yale L. J. 1108
(1941) .........................................................
5
William O. Douglas & George E. Bates, The
Federal Securities Act of 1933, 43 Yale
L.J. 171 (1933) ..........................................
8
INTEREST OF AMICI1
Amici are prominent corporate and securities law
scholars as well as former senior officials of the U.S.
Securities and Exchange Commission (SEC). Collectively,
they have decades of experience in teaching, studying,
administering and enforcing the federal securities
laws. Signatories include:
• Lucian A. Bebchuk, James Barr Ames Professor
of Law, Economics, and Finance and the Director
of the Program on Corporate Governance at
Harvard Law School. The Social Science
Research Network (SSRN) ranks Bebchuk as
among the two top legal academics in all fields
in terms of citations to his work.
• Matthew Cain, who served as an Advisor to an
SEC Commissioner and previously as a financial
economist at the SEC. Dr. Cain currently is a
Senior Fellow at the New York University
School of Law.
• Quinn D. Curtis, Associate Dean and Professor
of Law at the University of Virginia School of
Law. Professor Curtis has written extensively
on the regulation of mutual funds and retirement
accounts, including empirical work on 401(k)
plans, mutual fund governance and fee litigation, and he is a board member of the Society for
Empirical Legal Studies.
• Parveen P. Gupta, who served in the SEC’s
Division of Corporate Finance from 2006 to
1
No counsel for a party authored this brief in whole or in part.
No party or counsel for a party made a monetary contribution
intended to fund the preparation or submission of this brief, and
no person other than amici or its counsel made such a contribution.
2
2007. He is currently the Clayton Distinguished
Professor of Accounting at Lehigh University
and has served on the Investor Advisory Group
of the Public Company Accounting Oversight
Board.
• Thomas Lee Hazen, Cary C. Boshamer Distinguished Professor of Law at the University of
North Carolina School of Law. Professor Hazen,
a recognized expert in the fields of securities,
commodities, and corporate law, is the author of
a seven-volume treatise, Securities Regulation,
and has authored a monograph on securities
law that was commissioned by the Federal
Judicial Center.
• Edwin Hu, Associate Professor of Law at the
University of Virginia School of Law. Dr. Hu
previously served as an economist to an SEC
Commissioner and in the SEC’s Division of
Economic and Risk Analysis.
• Henry T.C. Hu, Allan Shivers Chair in the Law
of Banking and Finance at the University of
Texas at Austin School of Law. From 2009 to
2011, Professor Hu served as the founding
Director of the SEC’s Division of Economic and
Risk Analysis, the first newly created SEC
Division in thirty-seven years.
• Robert Jackson, who was nominated in 2017 by
President Donald J. Trump and unanimously
confirmed by the U.S. Senate to serve as an
SEC Commissioner, a role he held until 2020.
He is now Nathalie P. Urry Professor of Law
and Co-Director of the Institute for Corporate
Governance and Finance at the New York
University School of Law.
3
• Renee Jones, Professor and Dr. Thomas F. Carney
Distinguished Scholar at Boston College Law
School. Professor Jones previously served as
Director of the SEC’s Division of Corporation
Finance, leading a team of more than four
hundred SEC lawyers, accountants and analysts
charged with interpreting, implementing and
ensuring compliance with the federal securities
laws.
• Reinier Kraakman, Ezra Ripley Thayer Professor
of Law at Harvard Law School. Professor
Kraakman has been an advisor on company law
reform in Russia and Vietnam, is lead author of
the treatise The Anatomy of Corporate Law:
A Comparative and Functional Approach and
co-author of the textbook Cases and Commentaries
on the Law of Business Organization, and served
as a law clerk to Judge Henry J. Friendly of the
U.S. Court of Appeals for the Second Circuit.
• Donald Langevoort, Thomas Aquinas Professor
of Law at Georgetown Law. Professor Langevoort
is the co-author of Securities Regulation: Cases
and Materials, has testified numerous times
before Congressional committees on issues relating
to insider trading and securities litigation
reform, and previously served at the SEC as
Special Counsel to its Office of General Counsel.
• Allison Herren Lee, who served as an SEC
Commissioner from 2019 to 2022 and as Acting
Chair in 2021. Previously, she served for over a
decade in various roles at the SEC, including as
Counsel to a Commissioner and as a Senior
Counsel in the Division of Enforcement’s
Complex Financial Instruments Unit.
4
• John Morley, Augustus E. Lines Professor of
Law at Yale Law School. Professor Morley is a
leading expert on the regulation and structure
of investment funds, including mutual funds,
private equity funds and hedge funds.
• Jonathon Zytnick, Associate Professor of Law at
Georgetown Law. Dr. Zytnick, whose work has
appeared in the Journal of Financial Economics
and the American Law and Economics Review,
previously served as Counsel to an SEC
Commissioner and a law clerk on the United
States Court of Federal Claims.2
Cognizant that the Court’s task is “to determine
whether [the statute] displays an intent to create not
just a private right but also a private remedy,” and that
“[s]tatutory intent on this latter point is determinative,” Alexander v. Sandoval, 532 U.S. 275, 286 (2001),
amici write to describe the state-level securities laws
Congress drew from when drafting the text of Section
47(b) of the Investment Company Act (ICA), the
longstanding congressional recognition that that
language creates a private right to rescission, and the
economic reasons why a contrary holding would
undermine compliance with the ICA.
SUMMARY OF ARGUMENT
The Congress that wrote the original text of Section
47(b) was not writing on a blank slate. Instead, Section
47(b)’s original language mirrored widespread “voidness”
provisions in the Nation’s earliest state securities
laws—provisions that were widely understood to
2
The views expressed by amici do not necessarily reflect the
views of the institutions with which they are or were associated.
Those institutions are included solely for identification purposes.
5
confer a right to rescission.3 Those state “blue sky”
laws4 and the federal securities statutes that drew
on them—such as Section 47(b)’s federal precursor,
Section 29(b) of the Securities Exchange Act—reflected
lawmakers’ judgment that private rights to rescind
contracts that violate securities law can be an efficient
means of policing compliance. Later amendments to
the text of both Exchange Act Section 29(b) and ICA
Section 47(b) leave little doubt that the text Congress
chose created a private right to rescission, which is
why learned securities scholars have for so long
described rights of action under these statutes as
“more express than implied.” 3 Louis Loss, Securities
Regulation 1759 (2d ed. 1961) (referring to Exchange
Act Section 29(b)).
And lawmakers’ century-old judgment that private
rights of rescission efficiently aid compliance with
state and federal securities laws makes economic
sense. Securities regulators at both the state and
federal levels lack the resources and information
necessary to pursue rescission of agreements that
violate their organic statutes—which is why both state
and federal securities law have provided private rights
to rescind those agreements for so long.
3
See, e.g., Note, Validity of Contracts Which Violate Regulatory
Statutes, 50 YALE L.J. 1108, 1113 (1941) (the year after the ICA’s
passage, describing statutes “which provide that ‘every contract
made in violation of any provision of this title ... shall be void,”
and noting the prevailing view that “when they do, the word ‘void’
will be interpreted to mean ‘subject to rescission’”).
4
State securities laws are often called “blue sky” laws because,
as Justice McKenna explained for the Court in 1917, “the evil at
which” these laws were “aimed” was “speculative schemes which
have no more basis than so many feet of ‘blue sky,’” Hall v. GeigerJones Co., 242 U.S. 539 (1917).
6
ARGUMENT
I. IN HISTORICAL CONTEXT, THE ORIGINAL
AND AMENDED TEXT OF SECTION 47
REFLECT CONGRESS’S INTENT TO
CREATE
A
PRIVATE
RIGHT
TO
RESCISSION.
As originally adopted in 1940, Section 47(b) of the
ICA provided that “[e]very contract made in violation
of ” the ICA “shall be void” “as regards the rights of any
person who” “shall have made ... any such contract.” 54
Stat. 846 (1940). That text mirrored both Exchange Act
Section 29(b), which Congress had amended just two
years before, and state blue sky laws long understood
to create a private right to rescission.
As Judge Leval has explained, subsequent amendments to Section 47(b) leave little doubt that Congress
understood both the text it had chosen in 1940 and in
the amendments to create a private right to rescission.
Oxford Univ. Bank v. Lansuppe Feeder, LLC, 933 F.3d
99, 107 (2d Cir. 2019). Viewed in the historical context
in which state and federal securities-law statutes were
developed, those amendments, like subsequent changes
to Section 29(b), simply specify the circumstances
under which relief may be granted.
A. Rights to Rescission under Voidness
Provisions in State Blue Sky Laws.
Long before Congress adopted the principal federal
securities laws, a “majority of ” “state [securities-law]
statutes” “specifically include[d] some sort of provision
to the effect that” “contracts in violation shall be ‘void
or ‘voidable.’” Louis Loss, Securities Regulation 962
(1952). In the years prior to the Depression, those
provisions produced a legion of state-court opinions
relating to their application.
7
Those opinions reflect both a consensus that these
provisions created a private right to rescission and the
heritage of that right.5 The Supreme Court of New
Hampshire, for example, writing in 1922 to address
“the rights of the parties under a contract . . . made in
violation” of New Hampshire’s securities law, quoted
Lord Mansfield to explain that, “where contracts ... are
prohibited by positive statutes,” “in furtherance of
these statutes, the person injured, after the transaction is finished and completed, may bring his action to
defeat the contract.” Karamanou v. H.V. Greene Co.,
124 A. 373, 374 (1922) (cleaned up) (quoting Browning
v. Morris, 2 Cowp. 790, 792 (1778)).6
That right, of course, had limits. In the vast majority
of state blue sky laws, the word “violation” “refer[red]
broadly to any violation of the act.” Louis Loss, Blue
Sky Law 131 (1958). Courts interpreted that broad
language to mean that such contracts were voidable
in a court’s discretion, not void ab initio. That
interpretation guarded against absurd results. Were it
otherwise, a buyer, after years of receiving dividends
on stock purchased under such a contract, could seek
her original purchase price back. E.g., Cummings v.
5
Commenters collecting blue sky laws have referred to
voidness provisions as “[o]ne of the most common” sources of civil
liability in state securities law. Robert L. Matia, Express and
Implied Civil Liability Provisions in State Blue Sky Laws, 17
CASE WESTERN RES. L. REV. 1173 (1966). And it has long been said
that blue sky “voidability provisions” are an “[e]xpress,” rather
than implied, source of civil liability. Id.
6
Moreover, these voidness provisions were widely understood
to be both defensive and offensive. Courts made clear that these
provisions could be “pleaded” “as against the plaintiff’s right to
recover” or as an “affirmative action[] ... instituted for the purpose
of rescinding the prohibited agreements.” Tomberlin v. Waycross
Com. Hotel Co., 152 S.E. 300, 302 (Ga. Ct. App. 1930).
8
Hotchkin Co., 197 N.E. 473, 475 (Mass. 1935). And
instruments issued under contracts that violated state
securities law—because, say, they were not registered
as required—that had “subsequently passe[d] to a bona
fide purchaser for value” were “held, virtually without
exception,” to allow the “holder in due course . . . [to]
recover on [the instrument] despite the defect of
illegality.” Loss, Blue Sky Law, supra, at 132.
The Depression-era scholars who framed federal
securities law chose not to include a broad voidness
provision in the first statute they drafted, the
Securities Act of 1933.7 But the next year, Congress
chose to draw on states’ blue sky experience when
adopting the Securities Exchange Act of 1934.
B. Congress’s Adoption of Voidness Text in
Exchange Act Section 29 and ICA
Section 47 Demonstrate Intent to
Create a Right to Rescission.
When Congress undertook comprehensive securities
regulation, “it explicitly drew from” states’ “experience”
and “enactment of their own ‘blue-sky’ statutes.” Aaron
v. SEC, 446 U.S. 680, 711 (1980) (Blackmun, J.,
concurring in part). Congress chose to draw on states’
blue sky provisions when adopting Section 29 of
the Exchange Act, on which Section 47(b) has long
been understood to have been “modeled.” Louis Loss,
Securities Regulation 1786 (1983). Section 29’s
original text provided:
7
Among them was then-Yale Law School Professor William
Douglas, see William O. Douglas & George E. Bates, The Federal
Securities Act of 1933, 43 YALE L.J. 171 (1933), who served as the
third Chairman of the SEC before serving on this Court. HENRY
J. ABRAHAM, JUSTICES AND PRESIDENTS: A POLITICAL HISTORY OF
APPOINTMENTS TO THE SUPREME COURT (1992).
9
Validity of Contracts.—
(b) Every contract made in violation of any
provision of this title ... shall be void (1) as
regards the rights of any person who ... shall
have made or engaged in the performance of
any such contract, and (2) as regards the
rights of any person who, not being a party to
such contract, shall have acquired any right
thereunder with actual knowledge of the facts
by reason of which the making or performance
of such contract was in violation of [this title].
48 Stat. 903 (1934).
Like the voidness provisions in state blue sky laws,
the text of Section 29(b) has been widely understood,
virtually since its passage, to confer a private right to
rescission. See generally Samuel H. Gruenbaum &
Marc I. Steinberg, Section 29(b) of the Securities
Exchange Act of 1934: A Viable Remedy Awakened,
48 Geo. Wash. L. Rev. 1 (1979). Indeed, this Court
explained fifty years ago that Section 29(b), “which has
counterparts in ... the [ICA],” viz., Section 47(b), gives
“the victim” of a securities violation “the right to
rescind” the offending contract. Mills v. Elec. Auto-Lite
Co., 396 U.S. 375, 387-88 (1970).
Notice, too, that in Section 29(b)’s original text
Congress addressed one of the ambiguities present in
state blue sky statutes: whether rescission should be
available in cases involving instruments issued under
“void” contracts subsequent acquired by a bona fide
purchaser for value. Congress addressed this concern
by making rescission available against only such
purchasers who had “actual knowledge of the facts by
reason of which” the “contract was in violation” of law.
10
Four years after the Exchange Act became law,
Congress amended Section 29(b) in telling fashion.
Without altering the original text, in amendments to
Section 29(b) adopted in 1938, Congress added:
Provided, (A) That no contract shall be void by
reason of this subsection because of any
violation of [certain broker-related provisions]
of this title, and (B) that no contract shall be
deemed to be void by reason of this subsection
in any action maintained in reliance of this
subsection, [in certain cases], unless such
action is brought within one year after the
discovery [of certain facts] and within three
years after [a] violation [of certain provisions].
52 Stat. 1076 (1938).
We offer two observations about that text, which
added a statute of limitations to certain actions brought
under Section 29(b). First, as SEC Commissioner
Richard B. Smith explained:
Congress obviously did not add a statute of
limitations to apply to a right of action that
did not exist[. So federal courts] drew the
obvious conclusion that “[t]he 1938 amendment to Section 29(b) clearly contemplates
that a [private] civil suit may be brought.”8
Second, Congress in 1938 did not think it necessary
to change Section 29(b)’s original prefatory language
providing that contracts “shall be void” “as regards the
8
U.S. Sec. & Exch. Comm’n, Commissioner Richard B. Smith,
The Interest of the SEC in Private Civil Actions Under the
Securities Acts (remarks to the State Bar of California, Los
Angeles, January 1968) (quoting Geismar v. Bond & Goodwin, 40
F. Supp. 876, 878 (S.D.N.Y. 1941) (Coxe, J.)).
11
rights” of “any person” in order for courts to reach the
“obvious conclusion” that the statute created a private
right to a rescission remedy. Rather, Congress was
comfortable that that language, standing alone, was
adequate to create the cause of action that its
amendments limited in time.
Two years later,9 Congress10 chose language for ICA
Section 47(b) essentially identical to that used in
Exchange Act Section 29(b).11 As originally adopted,
ICA Section 47(b) provided:
9
The ICA was adopted after the “market crash of 1929 exposed
a range of practices that damaged the public reputation of closedend funds [(CEFs)] for years afterward.” John Morley, Collective
Branding and the Origins of Investment Fund Regulation, 6 VA.
L. & BUS. REV. 341, 353 (2014). “The primary difference between
‘mutual funds’ and ‘closed-end funds,’” like Petitioner, “is that
mutual funds allow shareholders to redeem their shares in
exchange for cash, while closed-end funds do not.” Id. at 348.
10
The ICA was developed in close collaboration between
Congress and the SEC; indeed, it was SEC-proposed legislation
that eventually became the ICA. The SEC’s proposal, in turn,
reflected a study, mandated by Section 30 of the Public Utility
Holding Company Act and overseen by SEC Commissioner
Robert Healy, of the investment company industry. SECURITIES
AND EXCHANGE COMM’N HISTORICAL SOCIETY, INVESTMENT
COMPANY REGULATION: THE INTRICACIES OF AN “ENLIGHTED
PARTNERSHIP” (citing U.S. Sec. & Exch. Comm’n, Study on
Investment Trusts and Companies (1940)) (noting that the study
included “33,000 pages of transcripts, 4,800 exhibits, and a multivolume report,” and that its most “striking finding was its
assessment of the damage”: “[a]ll told U.S. investors had lost
about $3 billion of a total $7 billion investment” in certain
investment vehicles).
11
Among the remarkable aspects of the ICA’s history is that it
was adopted as Congress contemplated World War II; “Dunkirk
was being evacuated on May 31 when the second round of Senate
hearings [related to the ICA] began, and the House hearings
ended on June 14, the day Germany occupied Paris. The only
12
Validity of Contracts.—
Every contract made in violation of any
provision of this title ... shall be void (1) as
regards the rights of any person who ... shall
have made or engaged in the performance of
any such contract, and (2) as regards the
rights of any person who, not being a party to
such contract, shall have acquired any right
thereunder with actual knowledge of the
facts by reason of which the making or
performance of such contract was in violation
of [this title].
54 Stat. 845-46 (1940).
C. Subsequent Legal Developments Reflect
the 1940 Congress’s Intent to Create a
Private Right to Rescission.
Three developments since 1940 have left no doubt
that Congress has always understood that Section
47(b) confers a private right to rescission.12
reason Congress was still meeting” when the ICA was adopted
“was that the Congressional session had been extended
indefinitely to prepare for war.” Morley, supra note 9, at 365.
12
The Government’s certiorari-stage concession that the
original text of Section 47(b) “authorized private suits,” Br. For
the U.S. as Amicus Curiae in Support of Granting the Petition, at
15, is difficult to square with its merits-stage refusal to take a
position on whether Section 47(a), which to this day uses the word
“void,” “confer[s] private right[s] under the reasoning of TAMA,”
U.S.Br. at 31. TAMA correctly and carefully analyzed similar
text; if the Government thinks TAMA incorrectly decided, it
should say so. In any event, the Government’s concession, if
accepted, leaves petitioners with the sole contention that the 1980
amendments to Section 47(b) somehow stripped a private right to
rescission under the ICA while leaving the same right in place in
the IAA and Exchange Act Section 29(b), and leaving untouched
13
First, in 1979 this Court’s decision in Transamerica
Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11 (1979)
(TAMA) considered similar text in Section 215 of the
Investment Advisers Act (IAA) and found that the
“statutory language itself fairly implies a right” to
rescission “[b]y declaring certain contracts void.” Id. at
18. “At the very least,” the Court explained, “Congress
must have assumed that § 215 could be raised
defensively in private litigation,” “[b]ut the legal
consequences of voidness are typically not so limited”:
“[a] person with the power to void a contract ordinarily
may resort to a court to have the contract rescinded.”
Id. Citing Exchange Act Section 29 as an example, the
Court “conclude[d] that when Congress declared in
§ 215 that certain contracts are void, it intended that
the customary legal incidents of voidness would follow,
including the availability of a suit for rescission.” Id.
Second, as Judge Leval has explained, Congress
responded to TAMA “in a manner that strongly
implied that it endorsed the result” this Court had
reached. Oxford, 933 F.3d at 107. The amendments
specified that a “contract that ... involves a violation of
this title ... is unenforceable by either party” “unless a
court finds that under the circumstances enforcement
would produce a more equitable result” and that, if
such a contract has been performed, “a court may not
deny rescission at the instance of any party unless
such court finds that under the circumstances the
denial of rescission would produce a more equitable
result than its grant and would not be inconsistent
with the purposes of this title.” Small Business
the prefatory phrase “Validity of Contracts” and the word “void”
in Section 47(a). Nothing in the amendments’ text suggests that
Congress thought it was taking such a significant step, and the
legislative history makes that interpretation implausible.
14
Investment Incentive Act of 1980, Pub. L. No. 96-477,
94 Stat. 2277 (Oct. 21, 1980).
The amendments’ text cannot be squared with the
readings of Section 47 advanced by petitioners and
their amici—contending, for example, that the
language permits civil actions to be brought only by
the SEC. See, e.g., Pet.Br. 32-35. For one thing, the
amendments refer repeatedly to claims brought by
“any party,” and as the Second Circuit noted, it is
“highly unlikely that Congress meant to allow a suit
only by the SEC when it used a phrase that so
unambiguously contemplates that more than one
entity may seek rescission.” Oxford, 933 F.3d at 10506. For another, when adopting the amendments
Congress made clear that it understood Section 47(b)
to confer a private right to rescission. Indeed, the
relevant House Committee Report noted that in recent
years the Supreme Court had:
turned its focus toward a strict construction
of statutory language and expressed intent[,
such as in TAMA], [where t]he Court would
not imply a private cause of action for
damages ....
The Committee wishes to make plain that
it expects the courts to imply private rights
of action under this legislation, where the
plaintiff falls within the class of persons
protected by the statutory provision in
question. Such a right would be consistent
with and further Congress’s intent in
enacting that provision ....
H.R. Rep. No. 96-1341, 96th Cong., 2d Sess., at 29
(1980).
15
Finally, the SEC responded to these events in 2001
by taking the view that, since the “reasoning” of TAMA
“applies equally to Section 47(b),” “the remedy [of
rescission] under the current version of Section 47(b)
should be viewed as an express rather than an implied
one.” SEC.Br. at 12, Olmstead v. Pruco Life Ins. Co. of
N.J. (2d Cir. 2002). “Moreover,” the SEC explained,
“Congress was aware of [TAMA] at the time it
amended [Section 47(b)] in 1980,” and “given the
explicit language in [the amended] Section 47(b)(2)
that creates a presumption in favor of rescission,” the
statutory text clearly provided a private right to that
remedy. Id. at 13.13
* * * *
The original text of Section 47(b) was drawn from
Exchange Act Section 29(b) at a time when the language
of the latter provision had just been amended to make
it “obvious,” in the view of both courts and SEC
Commissioners, that the text conferred a private right
13
Apparently the “SEC has since reconsidered its view of
Section 47(b) in light of this Court’s more recent guidance on
implied private rights to enforce federal law.” U.S.Br. at 12 n.2.
But the SEC’s carefully reasoned Olmstead brief was filed months
after this Court decided Sandoval, and in any event the
Commission’s repeated conclusion in Olmstead was that the right
to rescission in Section 47(b) was “express,” not implied, SEC.Br.,
Olmstead, supra, 2001 WL 34113763, at *2, *12, *24, making the
SEC’s unreasoned change in position puzzling. Since “the weight
due [federal-agency interpretations] must always ‘depend on
their thoroughness . . . , the validity of [their] reasoning, [their]
consistency with earlier and later pronouncements, and all those
factors which give them power to persuade,” Loper Bright Enter.
v. Raimondo, 603 U.S. 369, 388 (2024) (quoting Skidmore v. Swift
& Co., 323 U.S. 134, 140 (1944)); see also id. at 431-32 (Gorsuch,
J., concurring) (same), the SEC’s unexplained change of position
in this case deserves little weight.
16
to rescission. Both statutes’ text mirrored state
securities laws that had long used that language to
confer a private right to rescission. And when
Congress amended Section 47(b), it did so in a fashion
that adopted this Court’s conclusion in TAMA that the
text created a private right to rescission. Accordingly,
Section 47(b) presents one of the “cases in which,
[even] without an express statutory statement
concerning private actions, it remains possible to draw
[solely] from the text and history of the statute
inferences of congressional intent”; in such cases, like
this one, all that is required is “conventional statutory
interpretation.” Note, Implying Civil Remedies from
Federal Regulatory Statutes, 77 Harv. L. Rev. 285, 28990 (1963).
II. ECONOMIC
ANALYSIS
SUPPORTS
LAWMAKERS’ JUDGMENT THAT PRIVATE
RIGHTS TO RESCISSION OF CONTRACTS
THAT VIOLATE SECURITIES LAW CAN
BENEFIT INVESTORS.
Petitioners and their amici contend, as an economic
matter, that “centralized” enforcement of Section 47(b)
by the SEC alone would be superior to enforcement
by both the agency and through private rights to
rescission. Pet.Br. 38-41; e.g., Chamber of Commerce
Br. 20-23. As explained in Part I, supra, that view
conflicts with the policy judgment of dozens of state
legislatures and Congress which, in 1934 and 1938 (as
to Exchange Act Section 29(b)) and again in 1940 and
1980 (as to ICA Section 47(b)) disagreed. That alone is
reason enough to reject petitioners’ policy view.14 But,
14
To be sure, this Court has left no doubt that statutory text,
rather than economic analysis of the choices legislators have
made, is determinative in matters of interpretation. Sandoval,
17
as explained below, that view is also incorrect as a
matter of economic analysis of law.
As an economic matter, lawmakers’ judgment about
the benefits of private rights to rescission of contracts
that violate securities law makes sense. Both state and
federal governments lack the information and resources
necessary to pursue rescission of contracts that violate
securities law. And in closed-end funds particularly,
where shareholders cannot exit the fund at a price that
fully reflects the value of its assets, a private right to
rescission is a rare mechanism allowing investors to
respond to fund mismanagement.
A. Private Rights to Rescission Can be a
Desirable Supplement to Centralized
Securities-law Enforcement Facing
Limited Resources and Information.
From the earliest blue sky statutes, legislators
worried that state-level securities regulators lacked
resources necessary to seek rescission of contracts
violating state law. When those statutes were adopted,
“[e]xcept for a very few states, the blue sky offices
[were] far too small and too loosely organized to allow
a full administration of the statutes.” Loss, Blue Sky
Law, supra, at 57, 130. Those offices had inadequate
budgets and a “lack of administrative procedures to
effect rescission[, making private] civil liability an
appealing alternative” to public enforcement. Dale C.
LaPorte, Voidability Provisions under State Blue Sky
Laws, 17 Case W. Res. L. Rev. 1148 (1996).
Thus, it was well understood at “the state level” that
the government’s resource constraints “ma[d]e civil
532 U.S. at 287-88. We merely offer this analysis in response to
policy arguments advanced by petitioner and its amici.
18
liability a sine qua non in the blue sky laws.” Loss, Blue
Sky Law, supra, at 130. And “[e]ven at the federal level,
where there is a substantial enforcement agency,
Congress relied heavily on civil liability as a sanction.”
Id. Indeed, the House Report accompanying the 1980
amendments to the ICA noted that “Congress has
long taken the view that private rights of action for
violations of the federal securities laws are a necessary
adjunct to the [SEC’s] enforcement efforts.” H.R. Rep.
No. 1341, 96th Cong., 2d Sess., at 28. As SEC officials
have acknowledged, that is “[b]ecause the Commission
does not have adequate resources to detect and
prosecute all violations of the federal securities laws,”
such that “private actions perform a critical role in
preserving the integrity of our securities markets.”
Securities Investor Protection Act of 1991: Hearing
Before the Subcommittee on Securities of the Committee
on Banking, Housing, and Urban Affairs, 102d Cong.
(1991) at 15-16.
That remains true today. With a limited budget and
about four thousand employees, the SEC is responsible
for oversight of roughly 40,000 entities. That includes
some “17,000 registered funds” and “15,000 investment advisers”; the agency also reviews disclosures
from about 7,800 reporting companies.15 In light of
these competing priorities and limited resources, the
SEC simply cannot pursue rescission of every contract
that violates the ICA. Even in a case where the SEC
sought to rescind a contract between a single company
and counterparty as violative of securities law, the
agency could not be expected to rescind every similar
arrangement under its purview. It is no surprise that,
in light of the enormous expansion of the SEC’s
15
2023 SEC Fiscal Year 2023 Agency Financial Report, at ii.
19
enforcement apparatus that would be required to
ensure contractual compliance with the ICA, Congress
chose instead to give parties to those contracts the
right to seek rescission.
And even if centralized securities regulators at the
state and federal level had more resources, they would
lack information necessary to identify contracts that
offend securities law. Since government securities
regulators are rarely party to contracts with regulated
entities, those regulators lack incentives to invest in
information about the contents of such agreements. By
contrast, commercial counterparties have powerful
economic motivations to acquire that information in
connection with bargains over contractual terms. That
is why, as the Second Circuit observed, Congress chose
in Section 47(b) to “provide a remedy that benefits
a party ... to a contract whose provisions violate the
ICA,” that is, the party best positioned to know that
such a provision exists. Oxford, 933 F.3d at 105.
Finally, the threat of ex post rescission can generally
be expected to produce incentives for contracting
parties to ensure that their agreement complies with
securities regulation. Cf. Richard R.W. Brooks &
Alexander Stremitzer, Remedies on and Off Contract,
20 Yale L.J. 690 (2011). To the degree that such
compliance is thought to be desirable, decreasing the
expected level of rescission of those contracts by
requiring that remedy to be sought only by the
government would be harmful to investors.
20
B. Private Rights to Rescission Can Be
Especially Beneficial When Closed-End
Fund Governance Arrangements May
Violate the Investment Company Act.
Shareholders in most American investment alternatives, such as open-ended mutual funds and exchangetraded funds, have the right to exit—that is, to redeem
their shares at the value of the fund’s assets, or net
asset value (NAV)—at a time of the investor’s choosing.
John Morley, The Separation of Funds and Managers:
A Theory of Investment Fund Structure and
Regulation, 123 Yale L.J. 1228, 1246 (2014) (citing
Albert O. Hirschmann, Exit, Voice, and Loyalty:
Responses to Decline in Firms, Organizations, and
States (1970)).Economists and the SEC alike have
long recognized that this exit right alone provides
significant protection to investors.16
The reason is that the ex ante threat of exit deters
fund managers from opportunism, since incumbent
managers will fear that substantial redemptions will
follow weak returns.17 In fact, the financial economics
16
E.g., U.S. Sec. & Exch. Comm’n, Final Rule, Exchange Traded
Funds, Rel. No. IC-33646 (Sept. 25, 2019) (noting that the SEC
has “relied on th[e] close tie between what retail investors pay (or
receive) in the secondary market and an [exchange-traded fund’s]
approximate NAV to find that ... exemptions [for ETFs from
certain SEC requirements] are necessary or appropriate” (citing
Henry T.C. Hu & John D. Morley, A Regulatory Framework for
Exchange-Traded Funds, 91 S. CAL. L. REV. 839 (2018)).
17
Morley, Separation of Funds and Managers, supra, at 124950 (arguing that “redeeming and switching to a fund that
operates in the competitive portion of the market can almost
always produce as much benefit” for investors as other
governance mechanisms, such as voting) (citing John C. Coates
IV & R. Glenn Hubbard, Competition in the Mutual Fund
21
literature offers evidence that underperformance in
open-ended mutual funds leads to significant fund
outflows. See generally Susan E.K. Christoffersen,
David K. Musto & Russ Wermers, Investor Flows to
Asset Managers: Causes and Consequences, 6 Ann. Rev.
Fin. Econ. 289 (2014). Among mechanisms for disciplining wayward management, exit is often the lowestcost alternative for investors. See generally John C.
Coffee, Jr., Liquidity Versus Control: The Institutional
Investor as Corporate Monitor, 91 Colum. L. Rev. 1277
(1991). That is why scholars have long said, in mutual
funds that give investors the right to sell their shares
at NAV, simply exiting the underperforming fund is
often preferable to the alternatives.18
But closed-end funds do not provide investors with
the right to redeem their shares at NAV. In fact, a
substantial proportion of CEFs today do not give
investors any right ever to redeem their shares. And
while CEF investors can sell their shares on stock
exchanges, the price at which they can sell often
reflects a discount to NAV. See Charles M.C. Lee,
Andrei Shleifer & Richard H. Thaler, Investor
Sentiment and the Closed-End Fund Puzzle, 46 J. Fin.
75 (1991). Accordingly, the right to rescission granted
by Section 47(b) is a rare mechanism for CEF investors
to address arrangements that protect incompetent
incumbents from accountability.
Petitioners’ amici suggest that acknowledging that
Section 47(b) confers a right to rescission will cause
the securities-law sky to crash down around us. E.g.,
Chamber of Commerce Br. 16-24. But even casual
Industry: Evidence and Implications for Policy, 33 J. CORP. L. 151
(2007)).
18
Morley, Separation of Funds and Managers, supra, at 1250.
22
consideration of law or economics puts that claim wide
of the mark. As to the former, the Government agrees
that the original text of the ICA, in place from 1940 to
1980, conferred such a right, yet capitalism (and CEFs)
escaped catastrophe during that period. As to the
latter, because shareholders in any enterprise are
rationally apathetic and face collective-action problems,
they have little incentive to bear the considerable costs
of an action for rescission—which may be why it has
been relatively rarely invoked for years. See, e.g., John
C. Coffee, Jr., The Regulation of Entrepreneurial
Litigation: Balancing Fairness and Efficiency in the
Large Class Action, 54 U. Chi. L. Rev. 877 (1987).
Thus, the ICA’s longstanding private right to rescission
is particularly important in the context in which this
case arises: a CEF’s adoption of management-friendly
governance arrangements that arguably violate the
ICA. Closed-end fund activists such as the respondent
give investors a mechanism to address underperformance: a fellow shareholder willing to challenge
incumbent managers. The finance literature, including
a well-known “comprehensive empirical study” on the
subject, shows that this mechanism is especially effective
with respect to underperforming funds. Michael
Bradley, Alon Brav, Itay Goldstein & Wei Jiang,
Activist Arbitrage: A Study of Open-Ending Attempts
of Closed-End Funds, 95 J. Fin. Econ. 1 (2010). Indeed,
challengers like respondent tend to target CEFs whose
shares trade at relatively large discounts to NAV. Id.
Those efforts, the evidence shows, benefit CEF
investors in two ways: first, directly, by reducing the
discount to NAV at targeted funds substantially.
Second, CEF activists’ work indirectly benefits even
non-targeted funds by creating a meaningful threat to
23
other fund managers that underperformance may be
met by market-driven challengers. Id. (direct effects of
challenges can “reduce the discount of the targeted
funds by more than 10 percent on average”); id.
(challenges “affect[] CEF discounts not only via the
direct effect on the targeted funds, but also via an
indirect anticipation effect”).
In response to these investors’ challenges, CEFs
have attempted to adopt governance arrangements
that limit, or in some cases eliminate, investors’ right
to remove incumbent managers. Some appear to be
authorized by state law.19 Others take the form of
proposed changes to stock-exchange rules that would
eliminate the requirement that CEFs hold annual
meetings at which shareholders can elect directors.20
In defense of those arrangements, counsel to CEFs
have taken the position that “[n]othing in the 1940
[Investment Company] Act requires that a [closedend] fund’s directors be elected by the fund’s public
shareholders.”21
The prominence of management-friendly governance
arrangements at CEFs sheds light on the economic
wisdom of Congress’s decision to create a private right
19
See, e.g., MD. CORP. & ASSOC. CODE §§ 3-701 – 3-710 (the
Maryland control-share statute at issue below).
20
E.g., U.S. Sec. & Exch. Comm’n, New York Stock Exchange
LLC, Notice of Filing of Proposed Rule Change Amending Section
302.00 of the NYSE Listed Company Manual to Exempt ClosedEnd Funds Registered Under the Investment Company Act of
1940 from the Requirement to Hold Annual Shareholder
Meetings, 89 Fed. Reg. 56447 (2024).
21
Memorandum of Law in Support of Defendants’ Motion to
Dismiss in Saba Capital Master Fund, Ltd. v. BlackRock ESG
Capital Allocation Term Trust, No. 24-cv-01701, Dkt. No. 28, at 16
(SDNY Apr. 3, 2024).
24
of rescission for contracts that violate the ICA. To see
why, suppose that a closed-end fund, along with many
other similar CEFs, adopted a governance arrangement that would clearly violate the ICA—for example,
by staggering director elections such that a director’s
term exceeded five years.22 If the right to rescission
were limited to the SEC, there is a substantial
probability that the Commission’s resource constraints
might preclude any litigation on the subject—and
certainly those constraints would keep the Commission
from obtaining rescission of every such arrangement.
In fact, even here, where a private party succeeded in
persuading the federal courts that a CEF’s governance
arrangements violated the ICA and should be
rescinded, the SEC has chosen not to use its scarce
resources to obtain rescission of those arrangements
at all funds.
By contrast, the private right that Congress chose
increases the likelihood that a shareholder will invest
the resources necessary to obtain rescission of such
arrangements. Of course, even in the presence of a
private right, some arrangements that violate the ICA
may not be rescinded due to the collective-action
problems faced by public investors. But the private
right to rescission that Congress drew from state blue
sky laws and the Exchange Act puts the economic
incentives of CEF investors to work in obtaining
compliance with the ICA. Those incentives can be
especially valuable in cases where funds seek to adopt
22
See 15 U.S.C. § 80a-16(a) (“Nothing herein shall, however,
preclude a registered investment company from dividing its
directors into classes . . . : Provided, That no class shall be elected
for a . . . period longer than five years”).
25
governance arrangements in violation of the ICA that
protect incumbent managers at investor expense.
CONCLUSION
Drawing on state blue sky laws and the Exchange
Act, the Congress that enacted the ICA in 1940 created
in Section 47 a private right to rescind contracts that
violated the law Congress had chosen. The amendments to Section 47 that followed this Court’s decision
in TAMA provide little basis to think that Congress
abandoned that judgment in 1980. Economic analysis
offers a clear reason for lawmakers’ longstanding view
that private rights to rescission of contracts that
violate organic securities law offer a valuable mechanism
for policing compliance. That analysis is especially
compelling where closed-end funds adopt incumbentfriendly governance arrangements and investors lack
the exit rights that can otherwise discipline underperforming managers. Accordingly, the judgment of
the court of appeals should be affirmed.
Respectfully submitted,
JAMIE CROOKS
Counsel of Record
FAIRMARK PARTNERS, LLP
400 7th Street, NW, #304
Washington, DC 20004
(619) 507-4182
jamie@fairmarklaw.com
Counsel for Amici Curiae
October 16, 2025
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