PARIS (Reuters) - A tycoon with ties to ex-president Nicolas Sarkozy was put under formal investigation on suspicion of fraud on Friday in connection with a 403 million-euro ($524 million) arbitration award he received in 2008 to settle a legal dispute.
The case against Bernard Tapie could damage Sarkozy's ability to mount a comeback for the 2017 election. Investigators are trying to determine whether close ties between members of Sarkozy's inner circle and Tapie influenced a 2007 government decision to turn to a private arbitration tribunal to settle a dispute with now-defunct bank Credit Lyonnais.
Tapie, 70, a colorful member of France's business and sporting elite, was placed under investigation on suspicion of organized fraud after being questioned by police over four days.
Earlier, the state-controlled body charged with settling the debts of Credit Lyonnais, the Consortium de Realisation (CDR), petitioned the Paris appeals court to throw out the settlement Tapie received, the agency's lawyer, Pierre-Olivier Sur, told Reuters.
Tapie, a supporter of Sarkozy in the past two presidential elections, has denied any wrongdoing in the long-running case which has embroiled members of Sarkozy's former cabinet including International Monetary Fund head Christine Lagarde, his former finance minister.
"I stress there is nothing in the case file to show the arbitration was the result of fraud," Tapie's lawyer, Herve Temime, told reporters after announcing the move to place his client under formal investigation.
Under French law, such a step means there is "serious or consistent evidence" pointing to likely implication of a suspect in a crime. It often, but not always, leads to a trial.
Socialist President Francois Hollande, who came to power last year vowing to do away with what he said were unfair advantages accorded the rich and well-connected, had signaled that his government planned to challenge the arbitration.
In order to nullify the settlement, judges would have to find evidence of fraud.
Tapie claimed that Credit Lyonnais defrauded him by buying his stake in sports company Adidas in 1993 for 315.5 million euros only to sell it a year later for 701 million euros.
The arbitration went in Tapie's favor with the 285-million-euro award which, with interest, amounted to 403 million euros.
Also under formal investigation is a former aide to Lagarde, Stephane Richard, now the chief executive of France Telecom, who plans to appeal the decision.
Investigating magistrates have made Lagarde a "supervised witness" in the case, a less serious step than a formal investigation that means she will answer questions as a witness in the presence of her lawyer in any future hearings.
The fraud-related investigation of Tapie and Richard increases the likelihood of a trial that could further tarnish the image of the conservative party, which lost power last year with Sarkozy's defeat to Hollande.
(Reporting by Chine Labbe; Writing By Alexandria Sage; Editing by Catherine Bremer and Ralph Boulton)