Jennifer A. Short, Dominique L. Casimir, Brooke T. Iley ●
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: Basing interview 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.
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The U.S. Supreme Court has granted a 
Over two years ago, the Supreme Court in Universal Health Servs. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) upheld the implied certification theory of liability under the federal False Claims Act (“FCA”). Applying a two-part test, the Court stated that implied liability would attach where “at least two conditions” are satisfied: (1) the claim makes specific representations about goods or services provided and (2) the defendant’s failure to disclose noncompliance with a material statutory, regulatory, or contractual requirement renders those representations “misleading half-truths.” Courts interpreting Escobar have disagreed as to whether this two-part test is the exclusive means for establishing liability under the implied certification theory, or whether other circumstances might also trigger liability. For example, several courts have noted that Escobar’s reference to “at least two conditions” implies that other, unspecified factors might also be sufficient to create an implied certification claim. The Fourth Circuit, along with several other district courts, have adopted this more liberal view. Most other circuits that have addressed this issue, however, have found the two-part test to be mandatory. The First, Third, Fifth, and Seventh Circuits, as well as many district courts, have either explicitly or implicitly held that Escobar’s two-part test is the exclusive means of establishing implied certification. 
Hurricane Harvey’s damage to Texas and other areas is virtually unprecedented and is already estimated to be in the tens of billions of dollars. And Hurricane Irma, hurtling towards Florida, could likewise cause catastrophic damage. Though every disaster presents unique recovery challenges, a common theme in disaster relief efforts is the key role of the Federal Emergency Management Administration (“FEMA”) and a federal law known as the Stafford Act. Contractors eager to assist with relief and rebuilding efforts should pay close attention to the legal landscape underpinning the public funding behind disaster relief efforts, particularly given the scrutiny these efforts will receive in the wake of Hurricane Katrina.