A French court ordered the investigation into her role in a huge settlement paid to a businessman friend of President Nicolas Sarkozy when she was finance minister.
It is alleged that Ms Lagarde abused her authority in 2008 by approving a £250 million payment to magnate Bernard Tapie, who supported Mr Sarkozy’s presidential campaign in 2007.
Ms Lagarde denies any wrongdoing but the probe is a major embarrassment just a month after she took over as managing director of the IMF.
The 55-year-old became the first women to head the Washington-based Fund following the resignation of Dominique Strauss-Kahn.
Mr Strauss-Kahn was forced to quit in May after he was arrested in New York and charged with the attempted rape of a hotel chambermaid.
The scandal erupted at the worst possible time for the Fund as it struggled to deal with the escalating debt crisis in the Eurozone. Read More