The Court of Justice of the Republic asked three appeal court magistrates to investigate whether the former French finance minister is guilty of “complicity in forgery” and or “complicity in misuse of public funds”.
If she is brought to trial and found guilty she could face 10 years in prison and a fine of €150,000 ($212,000).
Lagarde, who took up her new post last month, has denied any wrongdoing or illegality in a case stemming from a massive payment to a controversial tycoon out of public funds in 2008 when she was still a minister.
The IMF’s executive board has expressed confidence in the 55-year-old, whose immediate predecessor, French politician Dominique Strauss-Kahn, resigned after he was accused of sexually assaulting a New York hotel maid.
Lagarde has been accused of exceeding her authority by cutting short a legal battle between flamboyant businessman Bernard Tapie and a formerly state-owned bank by sending the case to private arbitration.
The panel awarded compensation to Tapie, an acquaintance of Lagarde’s then boss, President Nicolas Sarkozy, supporting his claim he had lost out in the bank’s alleged mishandling of the sale of his sportswear brand Adidas.
The total payment from taxpayers was around €400 million ($560 million) — although Tapie is thought to have so far pocketed less than that — and the result outraged French opposition politicians.