French Court Orders Probe of IMF Chief Lagarde

PARIS -- A French court on Thursday ordered an investigation into new IMF chief Christine Lagarde's role in a much-criticized $400 million arbitration deal in favor of a controversial tycoon.

Lagarde was France's finance minister when magnate Bernard Tapie won a settlement in 2008 with a French state-owned bank over the mishandled sale of sportswear maker Adidas in the 1990s.

Lagarde took over as managing director of the International Monetary Fund last month after her predecessor, Dominique Strauss-Kahn, quit to face charges he tried to rape a New York hotel maid.

A commission at France's Court of Justice of the Republic decided Thursday that an investigation should be launched into Lagarde's role in the arbitration deal. It is a special court that convenes rarely and only to handle cases involving government ministers.

A senior prosecutor had requested an investigation in May, saying he suspected Lagarde overstepped her authority in allowing the arbitration to go forward.

Gerard Palisse, the head of the commission, announced the decision to reporters.

Lagarde's lawyer, Yves Repiquet, said she is not worried about the investigation and even welcomes it. "We'll get to the bottom of things. There will no longer be the least doubt," he told reporters after speaking with her by phone.

The possibility of a French investigation dogged Lagarde even before she was appointed to head the IMF.

Critics have said the case shouldn't have gone to a private arbitration authority because it involved a state-owned bank, Credit Lyonnais, and that Lagarde should have questioned the independence of one of the arbitration panel's judges.

It will likely take months before the investigation is completed and a decision is made on whether to send the case to the special court for a trial.

While Lagarde was finance minister, she won praise for her role in international negotiations during the global financial crisis and Europe's debt troubles.

After the legal troubles her predecessor Strauss-Kahn faced, Lagarde's IMF contract says she is "expected to observe the highest standards of ethical conduct" and "shall strive to avoid even the appearance of impropriety in your conduct."

Strauss-Kahn's contract did not include such language.