President Trump is backing off his plan to establish a $1.8 billion fund to compensate people who claimed they were victims of unfair prosecution by the government, two people familiar with the matter said on Monday.
The people, who spoke on condition of anonymity to describe the president’s thinking, said he had been leaning for days toward scrapping the fund, which critics have characterized as a scheme to reward Mr. Trump’s political allies with public benefits.
The administration signaled a retreat on Monday, when the Justice Department said in a statement that it would abide by a federal judge’s temporary order not to proceed with any steps to activate the fund until at least June 12, when a hearing on the fund is scheduled. The department said the administration disagreed with the decision but did not make clear whether it intended to fight the issue further in court.
It was unclear whether getting rid of the fund would affect another part of the legal settlement in the case, which provides Mr. Trump, his family and his businesses with significant immunity from audits.
Still, some administration officials privately expressed relief that the judge’s ruling showed a way out of what most had seen as a mess of the Trump team’s own making. But as with all things involving Mr. Trump, he could still decide to reverse course, especially as he tracks media coverage of his decision.
The decision by Mr. Trump to back down — at least for now — comes after rare pushback from members of his own party, who normally fall in line behind him. Some Republicans on Monday were looking for assurances that the president would actually follow through with killing off the fund, which likely would have distributed huge sums to Mr. Trump’s allies.
The White House referred to the Justice Department’s statement that it would abide by the temporary order.
The fund emerged as part of a deal the Justice Department brokered over Mr. Trump’s $10 billion lawsuit against the I.R.S., blaming it for the leak of his tax returns during his first term as president. The Biden administration then prosecuted the man responsible, and Mr. Trump filed the lawsuit in January.
Beyond the legal challenges, Mr. Trump has also faced increasing pressure from both parties on Capitol Hill to torpedo the fund. It was so appalling to Senate Republicans that last month they abruptly abandoned their plans to take up a filibuster-proof bill to fund the president’s immigration crackdown rather than advance Mr. Trump’s personal agenda and take what would have been a politically toxic vote.
Last month, Todd Blanche, the acting attorney general, appeared on Capitol Hill to meet with Senate Republicans and explain the fund in a two-hour, closed-door meeting that turned highly contentious. Senators vented that he had provided them with no explanations of how the fund would function or whether there would be any guardrails around the money.
The impasse was part of a broader split between Mr. Trump and Senate Republicans, who for most of the year have stood by him and his agenda, even as he has intervened in G.O.P. primaries in ways that could threaten Republican control of Congress in November.
The fund suffered a major legal setback on Friday when, in a surprise move, Judge Kathleen M. Williams, who oversaw Mr. Trump’s lawsuit against the I.R.S., suddenly reopened the case, saying that she wanted to investigate “grievous allegations” that the hasty deal to resolve it had been “premised on deception.”
Judge Williams had always had qualms about the lawsuit, given that Mr. Trump was suing a federal agency that he controlled and so was effectively on both sides of the case. And her reason for revisiting the suit was to investigate whether the president had essentially colluded with his own government to settle the case “to avoid judicial scrutiny.”
That same day, the compensation fund suffered another blow in the courts, when a federal judge in Alexandria, Va., put it on hold altogether until she could consider its underlying merits at a hearing scheduled for June 12.
The deal establishing the compensation fund had been negotiated by senior Justice Department officials — chief among them Trent McCotter, the principal associate deputy attorney general — and a small group of lawyers representing Mr. Trump, including Boris Epshteyn, his top outside legal adviser. The talks took place under significant pressure from a federal judge who had given the Justice Department until May 20 to tell her whether — and how — it planned to muster an independent defense of the I.R.S. against the man who ultimately controlled the agency.
That deadline set off a scramble as Mr. Trump’s lawyers and the Justice Department looked for a way to settle the suit and avoid further scrutiny from the judge. It put the Justice Department in an especially tight spot: Department leaders did not want to go into court and fight the suit, as they normally would, but they also did not want to settle it by paying Mr. Trump directly, concerned that such a move would be politically damaging.
In the end, they came up with a Plan B, establishing the so-called Anti-Weaponization Fund to make payments to Trump allies and supporters who claimed they had been wronged in the courts by the Biden administration. It would draw from the Judgment Fund, an unlimited source of money that Congress authorized the Justice Department to use to settle lawsuits filed against the federal government. If Mr. Trump does fully abandon his fund, there are still other possible avenues for his allies to seek restitution from the government for what they claim is weaponization. They could file individual lawsuits or administrative claims asking for money, which the government could simply agree to settle one by one.
In March, for example, the Justice Department agreed to pay $1.25 million to Michael T. Flynn, Mr. Trump’s former national security adviser, to settle claims that he was wrongfully prosecuted for making false statements to federal agents investigating ties between Russia and Mr. Trump’s 2016 presidential campaign. (He pleaded guilty to lying in the case, but was pardoned by Mr. Trump near the end of his first term.) Several Jan. 6 rioters, including members of the far-right group the Proud Boys prosecuted on charges of seditious conspiracy, have also sued the department for claims of prosecutorial misconduct.
Even if Mr. Trump moves forward with abandoning the fund, Democrats on Capitol Hill are signaling they still plan to corner Republicans into taking votes related to the fund.
On Monday, Senator Chuck Schumer, Democrat of New York and minority leader, kicked off the week noting that Senate Democrats were launching a coordinated effort to “kill the slush fund.”
“If Republicans return to reconciliation, we will be ready with amendments to shut the fund down,” Mr. Schumer wrote in a letter to Senate Democrats. “If they try to bury the issue, we will force them to the Senate floor. If they try to sneak behind appropriations, we will fight them there too.”
And three Democratic senators, Adam B. Schiff of California, Mark Kelly of Arizona and Elissa Slotkin of Michigan, introduced legislation to shut down the fund as well as any other attempt that they viewed as an abuse of the Judgment Fund.
Senator John Thune, Republican of South Dakota and majority leader, told reporters on Monday the best way forward was for the administration itself to shut down the fund.
But Senator John Kennedy, Republican of Louisiana, told reporters on Monday that the Trump administration should clearly state that it was giving up on the $1.8 billion fund if it had changed its position.
“Saying you’re going to follow a court order doesn’t tell me anything,” he told reporters. “You have to follow the court order.”
Minho Kim contributed reporting.
