DOJ Announces First DEI False Claims Act Settlement Under “Civil Rights Fraud Initiative”

For nearly a year, the U.S. Department of Justice (DOJ) has signaled its intent to use the False Claims Act (FCA) to police what it terms “illegal diversity, equity, inclusion, and accessibility” practices by federal contractors and grant recipients. On April 10, 2026, the DOJ announced that a federal contractor agreed to pay $17 million to resolve FCA allegations arising from allegedly discriminatory employment practices tied to its diversity, equity, and inclusion (DEI) programs. This settlement represents the first public resolution under the DOJ’s Civil Rights Fraud Initiative and signals that the administration’s FCA-based enforcement of antidiscrimination certifications is now an operational reality that recipients of federal funds must take seriously.

This Alert examines the scope of the DOJ’s Civil Rights Fraud Initiative, the allegations and resolution terms in the recently announced settlement, and what this development means for other recipients of federal funds. We conclude with practical recommendations for assessing and mitigating risk.

The Civil Rights Fraud Initiative

In January 2025, the Trump administration issued Executive Order 14173, Ending Illegal Discrimination and Restoring Merit Based Opportunity, which in part requires federal contractors and grant recipients to certify that they do not operate DEI programs that violate federal antidiscrimination laws and to agree that compliance with those laws is “material to the government’s payment decisions” for FCA purposes. Shortly thereafter, the Attorney General issued a memorandum declaring that the DOJ would “investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds” and reiterated that message in guidance later that year.

On May 19, 2025, then Deputy Attorney General Todd Blanche—who has since been elevated to Acting Attorney General—formally established the “Civil Rights Fraud Initiative.” In his announcement, Blanche stated that the FCA “is implicated whenever federal-funding recipients or contractors certify compliance with civil rights laws while knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through diversity, equity, and inclusion (DEI) programs that assign benefits or burdens on race, ethnicity, or national origin.”

Earlier this year, Brenna Jenny, Deputy Assistant Attorney General for the Commercial Litigation Branch, reiterated the Department’s commitment to the Civil Rights Fraud Initiative at the Federal Bar Association’s annual Qui Tam Conference. She expressed the belief that some companies had “lost their way” in the pursuit of DEI and ended up engaging in unlawful discrimination by seeking to achieve DEI-related goals. In her remarks, Jenny indicated that DOJ was already building “strong” FCA cases related to the Initiative and previewed that DOJ would seek penalties in connection with at least some of these resolutions.

Finally, in March, the President issued Executive Order 14398, directing executive departments to ensure contracts include new mandatory clauses. Those clauses include a prohibition on engaging in any racially discriminatory DEI activities and an acknowledgment that compliance with this prohibition is material to the government’s payment decisions for purposes of the FCA. The Executive Order also directed the Office of Management and Budget to issue guidance to ensure compliance with the order and directed the Attorney General to consider whether to bring actions under the FCA or act promptly on actions filed by whistleblowers under the FCA.

The Settlement

The settlement announced by DOJ on April 10 resolves allegations that IBM certified compliance with antidiscrimination requirements incorporated in its federal contracts—including requirements under Title VII of the Civil Rights Act of 1964 and the Federal Acquisition Regulation—while knowingly maintaining employment practices that the United States contends unlawfully discriminated against employees and applicants for employment because of race, color, national origin, or sex (collectively “protected demographic characteristics”).

The specific practices alleged by the government include:

• Compensation: IBM allegedly tied managers’ bonus compensation to achieving demographic targets and otherwise used modifications or adjustments to pay, bonuses, or other compensation that caused employees to take protected demographic characteristics into account when making employment decisions.
• Interview Slates and Hiring Criteria: IBM allegedly took protected demographic characteristics into account as part of its decisions to hire, transfer, or promote through the use of “diverse interview slates,” “diverse sourcing,” and other related employment practices.
• Demographic Goals: IBM allegedly developed race- and sex-based demographic goals for business units and took protected demographic characteristics into account when making employment decisions to achieve progress toward those demographic goals.
• Exclusive Training and Development Programs: IBM allegedly offered certain training, partnerships, mentoring, leadership development programs, and educational opportunities only to certain employees, with eligibility, participation, access, or admission limited on the basis of protected demographic characteristics.

The government contended that IBM certified compliance with federal antidiscrimination requirements while knowingly maintaining the above-described practices. In addition, IBM allegedly allocated costs to its federal government contracts relating to these practices, and sought payment and reimbursement under its federal government contracts for such costs.

Notably, the settlement agreement was signed by Associate Attorney General Stanley Woodward and Deputy Assistant Attorney General Jenny, indicating that enforcement actions under this Initiative are receiving attention at the highest levels of DOJ. A little less than half of the $17 million settlement amount was characterized as restitution, meaning the total settlement amount exceeded the typical doubling of restitution, consistent with Jenny’s comments regarding civil penalties earlier this year.

Implications for Contractors and Grant Recipients

The IBM settlement confirms that the DOJ’s Civil Rights Fraud Initiative is not merely rhetorical. Enforcement risks under the FCA—including the statute’s treble damages and penalty provisions—are now heightened for entities certifying compliance with antidiscrimination requirements while maintaining DEI-related employment practices that the government deems unlawful. Entities should pay particular attention to:

• Compensation structures tied to diversity metrics or demographic targets;
• Interview, hiring, transfer, or promotional policies and practices that require or encourage employment decisions based on diversity or protected demographic characteristics, particularly if those policies or practices set out express numerical targets or goals;
• Business unit-level demographic goals that influence employment decisions;
• Training, mentorship, leadership development, or educational programs with eligibility limited based on protected demographic characteristics; and
• The allocation (even indirectly) of costs associated with DEI programs that have the above characteristics to federal government contracts.

Although it does not appear that this resolution was prompted by a whistleblower complaint, DOJ has expressly encouraged private whistleblowers to file qui tam lawsuits alleging this DEI-related theory of liability. Current and former employees with knowledge of DEI-related programs that they believe violate antidiscrimination laws now have a strong financial incentive—and the DOJ’s public encouragement—to report such practices. This settlement also demonstrates, however, that the administration will not merely wait for these whistleblowers to come forward.

Takeaways and Recommended Next Steps

In light of this enforcement environment, entities that receive federal funding or hold federal contracts should consider taking the following steps in coordination with legal counsel:

• Conduct a Self-Assessment: Assessments should cover a range of business units and practices, such as offices or programs expressly referencing DEI; human resources and employment practices; clinical research and health equity initiatives; and vendor/supplier interactions.
• Training: Antidiscrimination laws have not changed, but the enforcement environment has. Ensure personnel understand the distinction between lawful and potentially unlawful activities and encourage employees to consult with legal or compliance professionals when they have questions about the current legal risks associated with a certain practice.
• Assess High-Visibility Materials: Perform keyword searches and targeted reviews of public-facing materials—websites, portals, and materials given to employees or research participants—for initiatives and language that could invite scrutiny.
• Review Specific Program Areas: Assess compensation structures, hiring and promotion criteria, interview processes, and training or development programs for any race- or sex-based eligibility criteria or preferences. Review supplier diversity programs for compliance.
• Engage Compliance Teams: Determine how to integrate DEI certification review into existing compliance structures and whether new roles or processes are needed.
• Document Appropriately: Record assessment activities and any resulting modifications, being mindful of intended—and unintended—recipients.
• Communicate Changes: Ensure modifications are timely communicated and appropriately implemented throughout the organization.

Conclusion

The IBM settlement marks a significant milestone: FCA enforcement under the Civil Rights Fraud Initiative is no longer theoretical. Federal contractors and grant recipients should treat this development as an urgent signal to assess (or re-assess) their DEI-related employment practices, training programs, and compensation structures. We will continue to monitor developments in this area. Please reach out to the authors or your usual firm advisors if you have questions about how these developments may affect your organization or wish to seek advice regarding a self-assessment.