Last year, the DOJ announced that it would begin investigating government contractors for potential violations of the False Claims Act (FCA) based on those companies’ Diversity, Equity and Inclusion (DEI) programs. Earlier this year, the DOJ outlined how the government could use the FCA to enforce what has been described as “illegal DEI” for potential violations of anti-discrimination law. Now, this type of enforcement is no longer theoretical, as the DOJ reached its first settlement based on this theory of FCA liability.

On April 10, 2026, the DOJ announced a settlement for over $17 million with IBM based on allegations related to IBM’s operation of internal DEI programs. This is the first FCA resolution secured under the Civil Rights Fraud Initiative, launched in May 2025. The government alleged that IBM violated anti-discrimination provisions “as incorporated into its federal contracts.” Those provisions allegedly required that IBM not discriminate against employees or applicants based on protected categories, including race, sex, and national origin. The government alleged that by using these protected categories to make hiring, compensation, and interviewing decisions, IBM engaged in illegal discrimination, in violation of its federal contracts and the FCA. In the settlement agreement, IBM denied it engaged in the alleged conduct, and admitted no liability.

Notably, the DOJ appears to have brought this action on its own, without the involvement of whistleblowers, who often initiate FCA cases. Despite limited resources, the DOJ has now followed through on Executive Orders from the Trump Administration and the DOJ’s public statements about applying the FCA to alleged “illegal DEI.” The settlement agreement also covered alleged conduct in 2019, suggesting the DOJ may be investigating and challenging conduct before the Trump Administration took office. We expect to see more applications of this novel theory of FCA liability in the months to come. 

Companies that operate DEI programs should consider taking affirmative steps to review these programs, especially those that operate as government contractors and have contractual obligations that the DOJ or a whistleblower may challenge through an FCA action. As noted in our prior coverage, the DOJ has stated that it is focused on hiring, compensation, or promotion decisions based on or influenced by an individual’s membership in any protected class. In particular, the settlement agreement specifically describes certain features of a DEI program that the DOJ has identified as problematic, such as tying compensation to achieving demographic targets, developing race and sex goals for business units and making employment decisions to achieve those goals, and offering opportunities or resources only to certain employees or limiting opportunities to participate based on protected class.

Showing the value of conducting an internal investigation in parallel to the government’s investigation, the DOJ noted that IBM received substantial cooperation credit based on early disclosures of facts gathered in its independent investigation, and undertook voluntary remedial measures, including terminating or modifying certain programs and practices.   

This theory of FCA liability has not yet been tested in court, and is subject to significant hurdles based on the FCA’s requirements, including the government or a whistleblower establishing intent and materiality, particularly for any claims before the change in administration. Further, the calculation of alleged damages for these types of claims would likely also be subject to scrutiny.

Reed Smith is closely monitoring the landscape, including any additional settlements and potential litigation over this new area of enforcement. If you have any questions or need assistance with FCA matters, please reach out to our team members.