U.S. Supreme Court justices signaled they will scale back the power of the Securities and Exchange Commission to recoup money taken years earlier in violation of federal law.

Hearing arguments in Washington, justices from across the court’s ideological spectrum suggested they thought the SEC is bound by a five-year statute of limitations when it seeks “disgorgement,” or the return of illegal profits.

A ruling against the SEC, which contends the time limit doesn’t apply, would curb a powerful mechanism for government lawyers. The SEC extracted $3 billion in disgorgement payments in 2015 -- more than double what it collected in other types of penalties -- and several justices said they thought the agency was going too far.

Chief Justice John Roberts pointed to a two-centuries-old opinion in which Chief Justice John Marshall said it was "utterly repugnant" for the government to have limitless power to impose penalties.

"The concern, it sees seems to me, is multiplied when it’s not only no limitation, but it’s something that the government kind of devised on its own," Roberts said.

The case before the court involves Charles R. Kokesh, a New Mexico man found by a jury to have misappropriated money from four investment companies he controlled. A judge ordered Kokesh to pay a $2.4 million civil penalty, plus $35 million in disgorgement, equal to the amount he was found to have misappropriated dating back to 1995. An appeals court ruled against Kokesh.

Five-Year Limit

Kokesh says the SEC should be able to collect only $5 million in disgorgement, the amount attributable to the five-year period before the agency filed its claims in 2009.

The legal provision that establishes the five-year statute of limitations doesn’t explicitly mention disgorgement. It says it applies to “enforcement of any civil fine, penalty or forfeiture.”

Justice Department lawyer Elaine Goldenberg said disgorgement was different than those sanctions because it isn’t a punishment and instead is focused on ensuring a violator doesn’t profit from illegal conduct.

"It just remedies unjust enrichment, and it takes the defendant back into the position the defendant would have been in if the defendant hadn’t engaged in a securities law violation in the first instance," she argued.

‘An Unreality’

Justice Ruth Bader Ginsburg asked whether that argument had "kind of an unreality" to it given the size of the $35 million disgorgement award in Kokesh’s case. "It’s much larger than the penalty," she said.

Kokesh’s lawyer, Adam Unikowsky, said the SEC’s disgorgement efforts were indistinguishable from penalties and forfeitures, in part because the money goes to the government, with only a portion later being provided to the victims.

"It’s not a judgment in favor of the victims at all," Unikowsky argued.

His allies Tuesday included the newest justice, Neil Gorsuch, who said disgorgement is treated as a penalty in the criminal context.

"So why does the form, whether this is civil versus criminal, make all the difference?" he asked Goldenberg. "And how do we ever know? I mean, goodness gracious, the difference between civil and criminal has vexed this court for many years."

The court will rule by the end of June in the case, Kokesh v. SEC, 16-529.

This article was provided by Bloomberg News.