French magistrates place IMF chief Christine Lagarde under investigation in fraud case

IMF chief Christine Lagarde has been put under formal investigation by French magistrates for negligence in a political fraud affair dating from 2008 when she was finance minister.

Lagarde, who this week was questioned by magistrates in Paris for a fourth time under her existing status as a witness in the long-running saga, said she would contest the decision.

"I have asked my lawyer to use all recourse against this decision which I consider to be completely unfounded," she said on BFMTV. "I am returning to work in Washington this afternoon."

Under French law, magistrates place someone under formal investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial.

Lagarde's lawyer, Yves Repiquet, told Reuters he would appeal the appeal the magistrates' decision and so the matter would not prevent Lagarde from doing her job at the head of the International Monetary Fund in the meantime.

"She is now on her way back to Washington and will, of course, brief the (IMF) Board as soon as possible," IMF spokesman Gerry Rice said. "Until then, we have no further comment."

The inquiry relates to allegations tycoon Bernard Tapie, a supporter of conservative ex-president Nicolas Sarkozy, was improperly awarded 403 million euros ($531 million) in an arbitration to settle a dispute with now defunct, state-owned bank Credit Lyonnais.

The inquiry has already embroiled several of Sarkozy's cabinet members and France Telecom CEO Stephane Richard, who was an aide to Lagarde when she was Sarkozy's finance minister.

In previous rounds of questioning, Lagarde has not recognized as her own the pre-printed signature to sign off on a document facilitating the payment, Repiquet told Reuters by telephone. However Richard has stated that Lagarde was fully briefed on the matter.

The offence of negligence by a person charged with public responsibility in France carries a maximum penalty of one year's imprisonment and a 15,000-euro fine.

Lagarde was a star in Sarkozy's cabinet and well-respected by peers, pushing through many of the high-profile initiatives in France's presidency of the G20 group of nations.

She has been managing director of the IMF since 2011 after her predecessor at the IMF, Frenchman Dominique Strauss-Kahn, resigned over sexual assault charges that were later dropped.

A spokesman said last year the global lender's board had discussed possible consequences of the Tapie case and determined that she would still be able to lead the fund.

Tapie, a colorful and often controversial character in the French business and sports world, sued the state for compensation after selling his stake in sports company Adidas to Credit Lyonnais in 1993.

He claimed the bank had defrauded him after it later resold his stake for a much higher sum. Credit Lyonnais, now part of Credit Agricole, has denied wrongdoing.

Investigators are trying to determine whether Tapie's political connections played a role in the government's decision to resort to arbitration that won him a huge pay-out. He has denied any wrongdoing.

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(Additional reporting by Anna Yukhananov in Washington; Writing Mark John; editing by Andrew Callus/Jeremy Gaunt)