On Friday, April 10, 2026, the Department of Justice (“DOJ”) announced a $17 million False Claims Act (“FCA”) settlement with International Business Machines (“IBM”), based on the company’s alleged violations of federal anti-discrimination laws. The settlement is the first under the DOJ’s Civil Rights Fraud Initiative, created last May with the objective of investigating and prosecuting “illegal DEI” practices, primarily through an FCA lens. Coupled with a new Executive Order—issued on March 26—that imposes contract prohibitions on “racially discriminatory DEI activities” in federal government contracts and subcontracts, the IBM settlement signals an escalation in the government’s focus on DEI programs and employment policies.
The DOJ Press Release and Settlement Agreement
The Alleged “Covered Conduct” Identifies Specific Problematic Practices.
DOJ alleged that IBM improperly made employment decisions based on protected characteristics through specific programs and actions, described as the “Covered Conduct” for purposes of the settlement agreement:
- Compensation Incentives: A “diversity modifier” linking bonus compensation to demographic targets
- Hiring and Promotion Criteria: Basinginterview eligibility or prioritization on race, sex, or national origin
- Demographic Goals for Business Units: Developing race and gender targets tied to employment decisions
- Limited-Access Programs: Limiting training, mentoring, and leadership development to employees meeting specific demographic criteria, such as minorities.
In defending President Trump’s Executive Orders related to discrimination and contractor responsibilities over the last year, the government has struggled to articulate what it considers “illegal DEI,” both in court and in guiding memoranda. DOJ recently acknowledged that it is not investigating DEI programs per se, recognizing that such initiatives can be perfectly legal and legitimate. The “Covered Conduct” description in the IBM settlement agreement provides insight into the particular types of activities the administration views as unlawful and can serve as a guidepost for companies evaluating their own policies and practices.
Consistent with recent statements by DOJ, the settlement does not condemn diversity initiatives broadly. DOJ did not challenge workforce analytics, recruiting outreach to diverse candidate pools, company-wide training and leadership development, employee resource groups, or aspirational diversity statements. The IBM settlement demonstrates that what is critical from an enforcement risk perspective is how a program operates, not whether diversity is a business priority.
The Settlement Provides Few Insights on DOJ’s Theory of FCA Liability.
DOJ’s press release asserts that IBM’s practices violated anti-discrimination laws and contract clauses applicable to government contractors, rendering IBM’s claims for payment and/or certifications of compliance actionable under the FCA. The settlement agreement does not, however, identify particular contracts, claims, or certifications by IBM, and is silent as to the materiality of any statements or certifications to the payment of IBM’s invoices. As we examined in a February 2025 alert, materiality is a necessary element of establishing FCA liability, and one that could be difficult prove where the government received the full value of the goods or services for which it contracted.
For context, IBM provides a wide range of products and services to the federal government, focusing on cloud computing, artificial intelligence, cybersecurity, and information technology (“IT”) modernization. The settlement does not claim that IBM misrepresented or failed to deliver any goods or services, nor does it describe how the company’s alleged violations impacted the value of what the government bargained for in its contracts.
The settlement agreement also includes interesting language around the FCA’s scienter element. It asserts that IBM knowingly maintained the Covered Conduct that the government considers discriminatory. To be liable under the FCA, the defendant must know (or recklessly disregard) that its claims for payment to the government were false; in this context, because it was non-compliant with some material term or condition of its contract. The IBM settlement does not connect the “knowledge” dots in the usual, logical order. This is another area where the government likely would have difficulty proving FCA liability, especially based on conduct that took place before the current administration’s emphasis on DEI programs. In the case of IBM, the settlement addresses conduct that allegedly occurred between 2019 and 2026.
The Settlement Amount is Significant, Even with “Cooperation” Credit.
In this case of untested waters, a $17 million FCA settlement payment is significant. It is unclear from the face of the settlement agreement or press release how the parties arrived at this figure. The settlement agreement suggests that less than half of the payment represents “restitution,” typically conceived of as the government’s single damages. It may be that the settlement represents a greater than double damages multiplier, or that—as the DOJ press release suggests—the total includes a penalties assessment. Either scenario is a bit unusual for an FCA settlement, as most cases resolve for somewhere around double damages.
Also noteworthy is DOJ’s recognition that IBM made substantial disclosures to government investigators and remediated the practices at issue. It is unclear whether IBM made these disclosures proactively, before a government investigation. Nevertheless, under the cooperation policy DOJ developed in 2023, a corporate defendant’s reward for disclosures is often a reduction in the penalties or damages multiple. But the IBM settlement does not detail to what degree monetary exposure was reduced based on IBM’s disclosures.
Other Observations about the Settlement Agreement.
Deviating from DOJ’s standard practice and settlement agreement language, the IBM resolution includes a strongly-worded complete denial from IBM that it engaged in the Covered Conduct. More typically, FCA settlements will include a generic statement that the agreement is not an admission of FCA liability by the defendant and the government does not concede that its claims are not well-founded. Here, the agreement includes both the typical language and a separate paragraph in which IBM expressly denies the government’s assertions. This could reflect that IBM made a business decision not to litigate notwithstanding the strengths of its legal position. A January 2026 Wall Street Journal article reported that DOJ is investigating a number of large, “name brand” companies under its Civil Rights Fraud Initiative. While IBM was not specifically identified in that article or the other press reports that followed, negative publicity is a factor that brings many companies to the negotiating table when faced with a potential FCA lawsuit.
The IBM settlement agreement is also unusual in that two high-level DOJ appointees—Associate Attorney General Woodward and Deputy Assistant Attorney General Jenny—signed on behalf of the government. Other than listing the Director for the Civil Fraud Section in the government’s signature block, no trial attorneys—that is, the front-line attorneys who typically are responsible for the day-to-day investigations and settlements under the FCA—appear on the settlement agreement. This could be viewed as a reflection of the internal significance that DOJ places on DEI-related investigations, particularly this first-of-its-kind settlement under the Civil Rights Fraud Initiative.
Why the IBM Settlement Matters for Contractors.
For government contractors, the IBM settlement appears to make good on the threats of using the FCA to enforce the current administration’s focus on “illegal DEI.” In providing concrete examples of employment practices that may be targeted as discriminatory under federal law, the settlement provides at least some guideposts for how contractors should be aligning their compliance goals.
Key Takeaways for Employers
1. Outcome-Based Demographic Targets Tied to Decisions Are High-Risk.
Linking employment decisions such as hiring, promotions, and compensation to demographic outcomes attracts scrutiny. Numerical goals functioning as de facto quotas, particularly in compensation structures, are squarely in enforcement crosshairs.
Practical Action: Evaluate whether diversity metrics influence employment decisions and shift incentives from “achieve X% representation” to “ensure fair access and documented job-related qualifications. ”
2. Federal Contractors Face Heightened Exposure.
The FCA allows for treble damages, civil penalties, and whistleblower actions. If your organization certifies equal employment opportunity (“EEO”) compliance in federal contracts or receives federal funds, certification accuracy is now a compliance imperative.
Practical Action: Coordinate human resources, legal, and procurement to ensure operational practices align with government representations.
3. DEI Programs Must Be Auditable and Defensible.
Contractors with DEI programs should be prepared to answer: Why does this program exist? What business problem does it solve? How does it operate without using protected characteristics as decision-making criteria?
Practical Action: Conduct an attorney-client privileged legal review of DEI programs, or a supplemental review based on these updates, focusing on eligibility criteria and incentive structures.
4. Private Employers Are Not Immune.
While the IBM settlement centers on federal contractor obligations, it signals broader scrutiny of race- and sex-conscious program design. Litigation exposure extends beyond the federal contracting context.
Practical Action: Review programs for vulnerability to reverse discrimination claims and ensure public communications align with actual practices.
The Bottom Line
The IBM settlement is a governance moment, not a directive to abandon workplace inclusion. Employers anchoring DEI efforts in fair access, skills-based performance evaluations, and clear documentation remain on defensible ground. Those relying on demographic targets or eligibility criteria tied to protected characteristics should evaluate how those policies and programs would stand up to scrutiny under the government’s views as expressed in the IBM settlement.
Federal contractors facing FCA exposure, whistleblower qui tam actions, and treble damages—and private employers facing reverse discrimination claims—should immediately engage employment counsel to audit and remediate diversity-linked compensation, demographic hiring targets, and access-limited programs before the next certification deadline or employee complaint.
