Ninth Circuit Rejects Private Suits Against Funds Under 13(a)
The Ninth Circuit Court of Appeals has ruled that shareholders do not have a private right of action to sue mutual funds for violations of Section 13(a) of the Investment Company Act, which requires a shareholder vote to change concentration policies. The plaintiff sued a mutual fund company alleged to have violated Section 13(a) by over-concentrating bond fund investments in subprime mortgage securities. The Ninth Circuit reversed the District Court’s ruling in favor of the plaintiff. The Court opined that courts should reluctantly create private rights of action and that the statute did not contain any express right. Most significantly, the Court explained that the SEC had broad authority to enforce the Investment Company Act, and Congress expressly granted private rights of action in Section 30 and 36 but not in 13(a). The Court specifically rejected the plaintiff’s argument that the Sudan Accountability and Divestment Act suggests that Section 13(a) included an implied right of private action.