PARIS (Reuters) - International Monetary Fund chief Christine Lagarde fought negligence charges in a Paris court on Tuesday, arguing she had approved a 2008 French state payout of 400 million euro ($425 million) to a business tycoon only to end a costly legal battle.
Aggressive grilling from the top judge put Lagarde on the defensive during the second day of the trial into her approval as finance minister of the rare out-of-court settlement with Bernard Tapie in a dispute over the sale of a stake in a company.
Lagarde, 60, faces up to a year in jail and a fine of 15,000 euros ($16,000) if convicted. A maximum sentence could raise questions about her ability to keep leading the Washington-based IMF, where her French predecessor Dominique Strauss Kahn resigned in 2011 over a sex assault scandal.
The head judge, Martine Ract Madoux, quizzed Lagarde about why she did not ask more questions about 45 million euros in damages included in the settlement when the original approval to seek arbitration did not cover damages.
"It's a punch in the gut, doesn't that make you react?" Madoux said on the second day of the trial, comparing the order to pay Tapie damages with the 30,000-50,000 euros that parents usually receive in compensation for the death of a child.
Lagarde said she had been "shocked, surprised, stunned" by the arbitration ruling, but also said the case was far from the only matter to deal with as the global financial crisis erupted.
The case dates back to a time when Tapie sued the state for compensation after selling his stake in sports company Adidas to then state-owned Credit Lyonnais in 1993. He accused the bank of defrauding him after it resold its stake for a higher price.
Lagarde told the court that she had approached the case not with political calculations in mind but had aimed to draw a line under a dispute which in 2005 alone had cost taxpayers 32 million euros in lawyers' fees.
"I was never negligent, I went even further than what can be usually expected of a minister," she said. "I went beyond what a more political and less technical minister would have done."
The case is being heard before a special court for trying cabinet ministers, which has only heard five cases since it was created in 1993 and never sent anyone to jail.
The court comprises a panel of 15 judges, including 12 lawmakers from both the lower and upper houses of parliament.
Lagarde said there were political motivations behind the case, noting that opposition lawmakers had brought it against her. However, she denied that her decisions had been politically motivated even though Tapie was a friend and supporter of then-conservative president Nicolas Sarkozy.
"I never received any instructions, neither one way nor the other," she said.
The trial is scheduled to run until Dec. 20.
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Reporting by Chine Labbé; Writing by Leigh Thomas; Editing by Sudip Kar-Gupta/Mark Heinrich