A French court on Monday found IMF head Christine Lagarde guilty of negligence over a massive state payout to a tycoon when she was French finance minister but spared her a fine or prison sentence.
The ruling was a rare setback in Lagarde\’s glittering career but it was not clear how it would affect her position at the International Monetary Fund, whose board was to meet in Washington to discuss the court\’s decision.
A special court in Paris found against Lagarde over her handling of a dispute between the state and flamboyant businessman Bernard Tapie, which ended in a 404-million-euro ($422 million) award for Tapie.
The court rapped Lagarde for failing to contest the massive payment, which was linked to Tapie\’s sale of the Adidas sportswear brand to Credit Lyonnaise bank.
Crucially, however, the Paris court exempted her from any penalty, citing her "international reputation" and the fact that at the time of the events in 2008 she had been busy fighting a global financial inferno.
The high-flying 60-year-old former corporate lawyer became the first female IMF chief in 2011, succeeding her disgraced compatriot Dominique Strauss-Kahn.
She was not in the Paris court for the ruling. Her lawyer Patrick Maisonneuve told reporters she was in Washington for "professional reasons".
He welcomed the absence of a sentence but said he "would have preferred that she be cleared outright".
The French government expressed continued support for Lagarde, saying it "retained its utmost confidence in her capacity to carry out her responsibilities".
Lagarde was tried over her decision to allow the long-running dispute over Tapie\’s sale of Adidas to be resolved by a private arbitration panel instead of by the courts.
The court cleared her of negligence over that decision but upheld the charge over her failure to contest the staggering amount of the resulting award.
An investigation later showed the arbitration to be fraudulent.
Tapie, who was later ordered to pay back the money, is among six people charged with fraud in a separate criminal case, along with the boss of Orange telecoms company, Stephane Richard, a former aide to Lagarde.
Lagarde\’s case was heard by the Court of Justice of the Republic — a tribunal of judges and members of parliament that hears cases against ministers accused of wrongdoing in office.
The punishment for negligence theoretically carried a one-year prison sentence and a 15,000-euro ($15,676) fine.
Lagarde told the court during her five-day trial last week she had acted in good faith.
"My sole aim was to defend the general interest," she said.
The court noted however that her inaction allowed Tapie and his wife to pocket 45 million euros in "moral damages" for alleged emotional harm — a sum included in the arbitration award.
Lagarde\’s voice cracked with emotion as she said on Friday that the case had put her family — she is the mother of two sons — through a "testing" time.
Prosecutor Jean-Claude Marin had described the evidence as "very weak" and said he was opposed to a guilty finding.
Coming in the middle of the global financial crisis, the payout to Tapie, a supporter of Lagarde\’s then boss, ex-president Nicolas Sarkozy, caused shock in France.
Tapie had sold Adidas to Credit Lyonnais for the equivalent of 315.5 million euros in 1993. The bank sold it on the following year for 701 million euros, prompting claims from Tapie that he had been cheated.
Lagarde, who was a relative newcomer to government at the time, told the court she had been busy with the financial crisis and that the arbitration process was "not a priority" at the time.
"The risk of fraud completely escaped me," she said.
Lagarde has won plaudits for her performance as IMF managing director and has been a key player in bailout negotiations for Greece.
She has also worked to reform the US- and Europe-dominated institution to reflect China\’s growing global leverage.
Her trial landed the IMF back in the headlines for alleged wrongdoing by its bosses, five years after Lagarde was chosen to succeed Strauss-Kahn when he resigned to fight sexual assault charges.
His case was later dropped and a civil case was settled out of court.
Another former IMF head, Rodrigo Rato of Spain, is currently standing trial on charges of misusing funds when he was head of Spanish lender Bankia.
Lagarde began her second term at the IMF in July.