French judges to decide on Lagarde inquiry June 10

PARIS (Reuters) - French judges will decide on June 10 whether to launch a formal inquiry into Finance Minister Christine Lagarde’s role in a legal settlement, which could hurt her chances of becoming the next head of the IMF.

The decision will coincide with the deadline for countries to put forward candidates to head the International Monetary Fund. Lagarde is seen as a favorite for the job to replace her fellow countryman, Dominique Strauss-Kahn, who quit after being arrested in New York this month on sex assault charges.

Opposition Socialist Party politicians have accused Lagarde of abusing her authority to award a 285 million euro ($400 million) payout to businessman Bernard Tapie, a friend and political ally of President Nicolas Sarkozy, to settle a legal dispute with a state-owned bank.

A public prosecutor this month recommended a full judicial inquiry into the affair, potentially the biggest obstacle to Lagarde’s candidacy for the IMF job.

Tapie is a former left-wing government minister who switched sides to support Sarkozy’s 2007 presidential campaign. He later sued the government, alleging that the former state-owned bank Credit Lyonnais had defrauded him during the sale of his stake in the sports giant Adidas in 1993.

He alleged the bank had defrauded him because the final sale price was higher than he had been led to believe.

A French court initially ruled against Tapie in 2006 but the case was still open when Sarkozy won office in 2007.

Bringing the long-running saga to a close, Lagarde agreed to drop the judicial proceedings and submit the case to a private three-member arbitration panel, overruling some voices within her ministry who argued that it should remain in court.

Credit Lyonnais was once the world’s second biggest bank but got into serious difficulty and was bailed out by the government in the 1990s after running up massive losses, leaving the French government with a host of liabilities.

The prosecutor says Lagarde ignored advisors’ recommendations to check whether the arbitration was legal and refused recommendations to appeal against the size of the award.

Reporting by Thierry Leveque; Writing by Alexandria Sage; Editing by Kevin Liffey