IMF chief Lagarde grilled over 'colossal' payout in French trial

PARIS: IMF boss Christine Lagarde faced a grilling on Tuesday, the second day of her trial, over the “colossal” damages payout authorised for a tycoon while she was French finance minister.

Presiding judge Martine Ract Madoux forced the head of the International Monetary Fund on the defensive as she questioned why 45 million euros ($48 million) had been paid to Bernard Tapie in compensation.

These so-called “moral damages” — to compensate for his emotional and physical suffering — were part of a 404 million euro settlement with Tapie in 2008 over a case he brought against the state.

“The heart of this case is the moral damages of 45 million euros… Ultimately, it’s a colossal figure,” said Ract Madoux, who said the state would pay out only 30,000-50,000 euros for the death of a child.

When Lagarde suggested that her questioning the figure would not have altered the case, the judge replied that the damages were like a “punch in the stomach” that should have made her react.

Lagarde has been charged with negligence over the settlement with Tapie, the former owner of sportswear giant Adidas and an ally of French ex-president Nicolas Sarkozy.

Tapie, a former government minister now aged 73, owned Adidas between 1990 and 1993 but lost control of it when he went bankrupt.

He sold it to state-owned bank Credit Lyonnais for 315.5 million euros in February 1993. The bank sold Adidas the year after at 701 million euros, leading Tapie to claim he had been cheated.

Lagarde, upon becoming finance minister in 2007 under Sarkozy, ordered that Tapie’s battle with the state be resolved by arbitration.

The decision was hugely costly, but after a lengthy court battle, Tapie was ordered to repay the 404 million euros he won.

Investigators suspect the arbitration process was rigged in favour of Tapie, who had supported Sarkozy in his 2007 election campaign. One of the arbitrators also had links to the businessman.

If found guilty, the IMF managing director could receive a maximum one-year prison sentence and a 15,000-euro fine.

The case also threatens the credibility of the International Monetary Fund, as the former high-flying corporate lawyer is the third IMF chief to face trial.

Lagarde’s line of defence on Tuesday was that she trusted guidance from her subordinates and that she was out of the loop for some negotiations in the ministry and in the president’s office.

She also recalled her busy international schedule and her “obsession” with the coming global financial crisis which would roil international markets later in the year.

Quizzed about why she decided not to appeal the arbitration decision in favour of Tapie after quickly reading the files during a flight, she replied that “waiting, delaying files, that has never been my style.”

In one of several tense exchanges, after Lagarde stressed how she wanted to bring “efficiency” to the ministry, she was reminded that she was not running a company.

The twice-divorced mother of two is being judged by a panel of three judges and 12 lawmakers selected from France’s upper and lower houses of parliament. The case is to continue until December 20.