In numerous public statements, Trump Administration officials have said the Administration intends to use the False Claims Act (FCA) to enforce certain policy priorities. For example, in connection with statements concerning the Administration’s intent to combat “illegal DEI,” officials have declared that corporate DEI policies or practices violating anti-discrimination laws could trigger FCA liability. There are a number of levels on which potential FCA liability represents a serious corporate liability risk, not least because of the possibility of whistleblowers (including company employees or competitors) launching FCA whistleblower claims. In addition, as discussed below, a recent Southern District of New York ruling highlights how potentially massive FCA liability can be.
Background
The FCA provides that anyone who knowingly submits a false claim for payment to the federal government can be liable for significant criminal or civil penalties. The Act establishes liability when any person or entity improperly receives from or avoids payment to the Federal government. The FCA also establishes liability for knowingly avoiding obligations to pay money to the government (known as “reverse false claim”). The Trump administration’s rationale for using the FCA against “illegal DEI” programs is rooted in a legal theory that certain DEI initiatives violate federal anti-discrimination laws, and that false certifications of compliance with those laws—especially in the context of federal contracts or grants—can trigger FCA liability.
The FCA imposes significant penalties (e.g., treble damages, statutory per-claim penalties, attorney fees) for submitting false claims to the government. The qui tam provision of the FCA allows private individuals, known as “whistleblowers” or “relators,” to file civil lawsuits on behalf of the federal government against entities or individuals who have allegedly submitted false claims to the government. If a whistleblower does bring a case, the federal government has the option to intervene in the case and successful whistleblowers may receive a significant portion (e.g., up to 30%) of any recovered damages, plus attorney’s fees, as a reward for their efforts.
As detailed in a recent memo from the Foley Hoag law firm (here), the administration has made it clear in various Executive Orders and other administration documents and statements that so-called “illegal DEI” in certain identified circumstances may violate the False Claims Act. The memo goes on to state that “by mandating that unlawful DEI policies and practices can trigger FCA liability, the administration is effectively enlisting private individuals to magnify its enforcement efforts and rewarding them with substantial financial bounties. This undoubtedly will incentivize whistleblowers and activists to bring cases challenging DEI activities in companies and institutions of all sizes.” It is important to consider the potential impact on whistleblower incentives as historically between two-thirds and three-quarters of actions under the FCA have ben initiated by whistleblowers.
Nor is the Administration’s efforts to combat “illegal DEI” the only policy initiative with respect to which the Administration has invoked the specter of potential FCA liability. As I noted in a prior post (here), the Trump administration’s tariff policies and other trade regulation practices also potential trigger significant FCA liability. Indeed, as discussed in a recent memo from the Vinson & Elkins law firm, Administration officials have signaled that “the Department of Justice (DOJ) intends to make ‘illegal foreign trade practices’ a major focus of the next four years.” In addition, the Administration has formed a joint DOJ-HHS Health Care Fraud Enforcement Group to combat health care fraud, including through the use of FCA enforcement actions.
Recent SDNY FCA Action
All of these Administration initiatives have significant implications for corporate liability exposure, particularly in light of the serious risk of FCA activity initiated not just by the federal government itself, but also brought by whistleblowers – including in particular employees and competitors. The potential scope of this potential liability exposure was significantly highlighted by a recent Southern District of New York ruling in which the court approved a massive FCA award.
As discussed in a July 9, 2025, post on the SDNY Blog (here), Southern District of New York Judge Colleen McMahon held that a $900 million FCA award was not unconstitutionally excessive. Judge McMahon imposed the more than $900 million in damages and statutory penalties under the FCA against long-term care pharmacy services provider Omnicare after a jury verdict finding that Omnicare submitted claims to the government for medications that lacked valid prescriptions.
The actual damages to the government were approximately $136 million, which amount was statutorily trebled, and to which statutory penalties were added. Omnicare had tried to argue in reliance on prior case authority that the Constitution limited the government to a one-to-one ratio of actual damages to penalties. Judge McMahon rejected this argument, which was based on due process considerations, saying that is issue was governed by the Constitution’s “excessive fines” clause, not the due process clause.
Among other things, Judge McMahon noted, with respect to FCA liability, that “Congress set a significant penalty to be imposed on top of treble damages in an egregious FCA case, and Defendants—highly sophisticated parties—understood the severity of the statutory penalty scheme.” Judge McMahon also noted that “under the applicable excessive fines analysis, penalties imposed by Congress are only excessive if they ‘shock the conscience.’” The amounts at issue, Judge McMahon found, were “in the realm of the serious, but not the surreal,” and so did not shock the conscience.
Discussion
The recent Omnicare award out of the SDNY did not involve an FCA action relating to any of the current Trump Administration initiatives. But the award does very starkly present the extent of potential liability under the FCA. The prosecution of FCA liability actions by the current administration presents the possibilities for massive damages awards, as the recent Omnicare action demonstrates –particularly where, as apparently was the case in the Omnicare action, the government can argue that the FCA violations were “egregious.”
Given that the Trump Administration is going to be using the FCA not just as an anti-fraud enforcement tool but as a way to enforce compliance with the Administration’s policy priorities, it seems likely that the government would be primed to maximize damage awards, by way of warning and deterrence.
Beyond just the sheer potential magnitude of FCA liability, there is the further problem of claims arising from or originating as a result of whistleblower activity. As detailed in a recent memo from Freshfields law firm (here), the DOJ and other government agencies are “trawling actively for complainants and whistleblowers.” In addition, according to the memo, prospective whistleblowers, responding to the potential rewards available to whistleblowers under the FCA, increasingly may be resorting to covert surveillance and other techniques, in order to identify actions and other information that might serve as the basis for an FCA action. Again, as noted above, it is important to keep in mind that the vast majority of FCA actions originate as whistleblower actions.
These developments present a number of implications. Among other things, companies (including in particular federal government contractors) need to recognize the extent of potential FCA liability and be aware of the possibility of whistleblower actions and activity, as detailed further in the Freshfields law firm’s memo to which I linked above.
Readers of this blog may wonder about the potential D&O insurance implications. As I have detailed in numerous prior posts on this site (for example, here), it has long been recognized that FCA actions are an awkward fit for D&O insurance policies.
For starters, according to statutory FCA procedures, relators (that is, whistleblowers) may filed FCA complaints, but not serve the complaints on the defendants, while the government determines whether or not to take up the action. This creates recurring notice of claim and claims made date issues. In addition, trebled FCA damages and FCA penalties likely would not be covered under most U.S. D&O insurance policies.
In addition, public company D&O insurance policies provide entity coverage only for securities claims; as FCA actions are not securities claims, the likelihood is that an FCA action would not trigger the entity coverage under a public company D&O insurance policies. Notwithstanding all of these concerns, corporate defendants (particularly private companies) may still seek FCA action coverage under their D&O insurance policies, including not least with respect to defense expense.
If, as seems likely at this point, the Trump Administration does seek to use the FCA as tool to try to enforce the implementation of the Administration’s policy priorities, these D&O Insurance coverage concerns could in the months ahead become an important insurance battle line. And without regard to the D&O insurance issues, potential FCA liability could come to represent an increasingly important component of significant potential corporate liability exposure in the months ahead.