IMF chief Lagarde under investigation in France

Christine Lagarde is warning about an oil shock. Photo / AP

International Monetary Fund Managing Director Christine Lagarde has been put under formal investigation for her role in an arbitration case during her time as French finance minister.

Lagarde, 58, who has no plans to step down from her post, said in a statement that she will convene a meeting of the IMF board to explain the situation.

In 2008, Lagarde decided to allow an arbitration to end a dispute between Bernard Tapie, a businessman and supporter of then President Nicolas Sarkozy, and former state-owned bank Credit Lyonnais. Lagarde, who was put under investigation for "negligence" by the Cour de Justice de la Republique, denied any wrongdoing, saying it was the best option for the state.

"They consider at this stage that she did not willingly participate in activities to defraud the state," said Stephane Bonifassi, a lawyer at Lebray & Associes in Paris, which is not involved in the case. "A further decision will have to be made about whether she should go to trial or not."

Lagarde faces a rarely used minor charge of negligence in the use of public funds in the criminal case, which carries a maximum penalty of one year in prison and a fine of 15,000 euros ($20,000), the lawyer said in an interview. There's no time limit for the court to decide on taking the case to trial and it may continue "for a fairly long time," he said.

"An investigation in the French system can go on and on," Bonifassi said.

Lagarde said she has instructed her lawyer to appeal the decision, "which I consider totally without merit."

"After three years of procedure, the sole surviving allegation is that through inadvertence or inattention I may have failed to intervene to block the arbitration that brought to an end the longstanding Tapie litigation," she said.

Her lawyer Yves Repiquet couldn't immediately be reached for comment.

The court has been looking into whether Lagarde erred in agreeing to the arbitration that resulted in the business tycoon being awarded about $500 million. Tapie, a businessman, who has also dabbled in politics and acting, won the 385 million-euro arbitration award to settle a dispute over his company's sale of German sportswear brand Adidas.

He contended that Credit Lyonnais mishandled the 1993 sale and pursued a claim against the bank's liquidator.

Tapie, a minister for less than a year under former Socialist President Francois Mitterrand in the 1990s, endorsed Sarkozy's successful presidential effort in 2007 and failed re- election bid in 2012.

Separately, Orange Chief Executive Officer Stephane Richard, who was Lagarde's chief of staff at the French finance ministry during the Tapie arbitration decision, was put under formal investigation in the case last year. Richard, 53, who retained his top spot at the French phone company, was offered another term by the carrier's board this year.

Lagarde took over the Washington-based fund as the institution was reeling from the arrest of Dominique Strauss- Kahn on charges including the attempted rape of a hotel maid in New York. The charges were later dropped, and he settled the maid's lawsuit in 2012.