WASHINGTON — A Supreme Court argument that started on Tuesday as a routine consideration of the time limits for filing some kinds of securities fraud suits turned by its conclusion into a broad attack from justices across the ideological spectrum on what they said was government overreaching with the potential to do away with statutes of limitations whenever the government seeks civil penalties for any kind of fraud.
“It seems to me to have enormous consequences,” said Justice Stephen G. Breyer, “for the government suddenly to try to assert a quasi-criminal penalty and abolish the statute of limitations, I mean, in a vast set of cases.”
Justice Antonin Scalia agreed. “What’s extraordinary,” he said, “is that the government has never asserted this, except in the 19th century, when it was rebuffed.”
The two justices, joined by Chief Justice John G. Roberts Jr., pressed a lawyer for the government, Jeffrey B. Wall, to identify a single precedent allowing its proposed approach. Mr. Wall said there were no such cases “one way or the other.”
That struck Justice Scalia as telling. “You’d expect there to be some cases in a couple of hundred years,” he said. “Fraud is nothing new, for Pete’s sake.”
The case before the justices, Gabelli v. Securities and Exchange Commission, No. 11-1274, concerned Marc J. Gabelli and Bruce Alpert, who were executives affiliated with a mutual fund company, Gabelli Funds L.L.C. They argued that the S.E.C. had waited too long to sue them for what the agency said were abuses related to rapid trading by a hedge fund.
The law at issue, which applies to many kinds of government requests for civil penalties, says lawsuits “shall not be entertained unless commenced within five years from the date when the claim first accrued.” The agency sued more than five years after the disputed conduct.
The question for the justices was whether there should be an exception to the deadline for cases involving fraud. In ordinary civil litigation, it is not unusual for courts to say that the clock starts running in fraud cases only when the plaintiff discovers or should have discovered the wrongdoing.
The exception is based on the idea, Justice Elena Kagan explained on Tuesday, “that a defendant with unclean hands who has committed deceptive conduct” should not benefit from the statute of limitations.
Lewis Liman, a lawyer for the executives, said there were good reasons to treat the government differently. Several justices picked up his theme, saying it was one thing for the victims of a fraud to wait to sue until they learned they had been injured and another for an overburdened government to sue years or decades later, after starting a belated investigation.
“It’s a big, big government,” Chief Justice Roberts said, and defendants might have a hard time proving that officials should have discovered the contested conduct by a certain date.
Mr. Wall said his adversaries “can’t point to a single case” where that had been a problem. The chief justice, recalling Mr. Wall’s own inability to cite precedents for his position, responded in a mocking tone, “So you think it’s significant if you can’t point to a single case?”
As the argument progressed, the justices seemed to become increasingly alert to the importance of the matter at hand.
“This is not an S.E.C. statute,” Justice Breyer said of the law in question. “This is not a securities statute. It is a statute that applies to all government actions, which is a huge category across the board, and it’s about 200 years old.”
Justice Scalia asked why criminal prosecutions should be treated differently from government actions for civil penalties. Mr. Wall directed the justice to a 1997 decision, Hudson v. United States, which distinguished between the two.
Chief Justice Roberts asked, “What about the Halper case?” In that case, heard in 1989, a lawyer convinced all nine justices that the two kinds of legal actions were similar enough that the constitution’s double jeopardy clause should apply to suits for civil penalties for a fraud that had led to a criminal conviction.
Mr. Wall said the Hudson decision had disavowed Halper. Neither man mentioned that the lawyer who had won the Halper case was the chief justice himself, while he was in private practice.