International Monetary Fund (IMF) chief Christine Lagarde was ordered Thursday to stand trial over her handling of a massive state payout to French tycoon Bernard Tapie when she was finance minister.
Lagarde was placed under formal investigation in 2014 for negligence in a protracted legal drama pitting Tapie against a bank which he accused of defrauding him during his sale of sports clothing giant Adidas (Other OTC: ADDDF - news) in the 1990s.
The 59-year-old Frenchwoman was finance minister under former president Nicolas Sarkozy in 2008 when she decided to allow arbitration in the dispute between Tapie and partly state-owned Credit Lyonnais.
The arbitration resulted in Tapie, who had close ties to Sarkozy, being awarded a payout of 403 million euros ($433 million), which would have to be covered by a state-run body in charge of settling the bank's debts.
French prosecutors in September called for the case against Lagarde to be dropped.
But investigating judges decided to send her to trial, a legal source told AFP Thursday.
The negligence charge comes over Lagarde's failure to challenge the award, which was hugely beneficial to Tapie but prejudicial to the state.
Lagarde has denied wrongdoing or that she acted on Sarkozy's orders.
In a statement Thursday she said she would appeal the decision which she described as "difficult to understand".
Lagarde said she had "always acted in the interests of the state and the law."
The IMF's executive board, representing 188 member nations, "continues to express its confidence in the managing director's ability to effectively carry out her duties," spokesman Gerry Rice said.
French Finance Minister Michel Sapin said Lagarde should remain in her post because "she is presumed innocent."
The scandal is not the first to taint the top office of the financial institution.
Its former French chief Dominique Strauss-Kahn was forced to step down in 2011 after being accused of sexual assault by a New York hotel maid.
Criminal charges against him were dropped and the case was settled in a civil suit.
- Tapie 'ruined' -
Investigating judges have been probing whether the arbitration was a "sham" organised to reward Tapie for his support of Sarkozy.
The arbitration decision itself was overturned in February after years of court proceedings.
Tapie was ordered to pay back the money at the beginning of this month.
"I am ruined. Ru-ined. Absolutely on ruined street. I haven't got a thing," 72-year-old Tapie said after the decision.
A flamboyant figure who served a prison sentence for match-fixing during his time as the president of France's biggest football club, Olympique de Marseille, Tapie bought Adidas in the early 1990s.
However he decided to sell it shortly after to concentrate on his political career, putting the sale in the hands of Credit Lyonnais, a state-run bank that has since been privatised.
Adidas was re-sold in 1994 for a substantially higher sum, and floated on the French stock exchange in 1995 -- leading Tapie to claim that the bank had failed to act in his interests.
Critics of Lagarde's decision to send the Tapie case to arbitration say that, even if there was no shady motive, she should not have run the risk of the state being forced to pay compensation to a convicted criminal who was bankrupt at the time.
The state-run body in charge of settling Credit Lyonnais' debts only decided to appeal the arbitration award in 2013, after Socialist President Francois Hollande came to power.
Lagarde's former chief of staff Stephane Richard, now head of the Orange (Taiwan OTC: 4554.TWO - news) telecoms giant, is among those charged with fraud in the case.