Judge probes whether deal creating Trump’s $1.8 billion fund constitutes fraud

A federal judge on Friday ordered lawyers for President Donald Trump and his family to respond to “grievous allegations” that an unusual deal to end their lawsuit against the IRS constituted an act of fraud, asking them to explain why the controversial agreement was an appropriate way to resolve the case.

It’s an extraordinary request by U.S. District Judge Kathleen M. Williams in Florida, who is acting on a rarely used judicial authority to investigate misconduct against the court. It could lead the court to reopen a case that had been dismissed earlier this month, and threaten the legal underpinning that acting attorney general Todd Blanche used to establish a nearly $1.8 billion fund to pay people who claim they were unfairly investigated or prosecuted.

Williams’s order was prompted by a filing in the case brought by a group of retired federal judges who had raised significant concerns about the fund’s creation as part of a deal to end the Trump family’s lawsuit against the IRS over leaked tax records. They claimed that Trump and the federal government deceived the court by failing to disclose the terms of their settlement and asked Williams, who was overseeing the case, to reopen it.

Trump had agreed to drop his family’s lawsuit against the IRS as part of a deal that establishes the $1.8 billion fund to compensate those who, like him, claim they have been targets of a “weaponized” justice system.

The fund has provoked criticism from lawmakers and others who question how it was created and argue it would be used to benefit the president’s allies and Jan. 6 rioters pardoned by Trump.

“The purported ‘settlement’ that the parties never placed before this Court raises profound questions about the parties’ candor toward the Court and manipulation of the judicial system, which threatens to undermine confidence in the administration of justice,” the former judges wrote.

The former judges asked the court to utilize a rule that would allow Williams to set aside the judgment and reopen the case for a “judicial review of the extraordinary — and historically unprecedented — circumstances presented by this litigation and by the collusive ‘settlement’ that invokes this litigation as the legal justification for its terms.”

Williams asked the Trump lawyers to address the former federal judges’ “charges of collusion,” as well as their assertions that the federal government and the Trump family lawyers deceived the court. She also asked the lawyers to address “whether the case should be reopened because the court was the ‘victim of fraud.’”

Williams wrote in Friday’s order that the court may impose sanctions if a claim is filed for an “improper purpose.”

“A party’s decision to file a frivolous lawsuit for the sole purpose of forcing a settlement may qualify as such an improper purpose,” she added.

Williams asked Trump and his family to respond to the allegations raised by the group of judges by June 12.

The Justice Department and lawyers for the Trump family did not immediately respond to requests for comment.

Earlier Friday, a judge in Virginia temporarily blocked the Trump administration’s plans for the fund, writing that the administration cannot use the money or process claims until at least June 12.

Trump, his two eldest sons and his family business filed their suit against the IRS in January, seeking as much as $10 billion in damages for the theft of their tax filings by a former contractor, who then leaked them to news organizations. Williams had previously questioned whether the parties were “sufficiently adverse,” because Trump was both a plaintiff and the president overseeing the agencies he was suing.

After the plaintiffs asked to voluntarily drop the lawsuit, Williams dismissed and closed the case, noting that there was “no settlement of record.” The president’s attorneys said in a court filing that they did not believe their deal with the IRS required judicial approval.

Along with the payout fund, the Justice Department has said Trump will get an apology but no money from the fund. As part of the agreement, the IRS is barred from pursuing unpaid tax claims against Trump, members of his family or his businesses that arose before the deal was reached. The agreement does not limit audits of future taxes.

Under the terms of the agreement, Trump will withdraw two other legal claims he had filed against the government seeking hundreds of millions of dollars.

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• Mark Berman, Jeremy Roebuck and Perry Stein contributed.