A French court has decided to investigate whether International Monetary Fund chief Christine Lagarde abused her authority when she tried to resolve a legal dispute while serving as French finance minister.

The special tribunal known as the Court of Justice of the Republic ordered the investigation of Lagarde Thursday, after examining a complaint brought by opposition Socialist lawmakers.

Socialists accuse Lagarde of abusing her authority in 2007 by allowing a private arbitration panel to settle a long-running dispute between French tycoon Bernard Tapie and a state-owned bank. In 2008, the panel awarded more than $400 million in taxpayer money to Tapie, a friend of Lagarde's then-boss, French President Nicolas Sarkozy.

French prosecutors said Thursday Lagarde is suspected of embezzling public funds and complicity in falsifying documents. She denies any misconduct. Lagarde's lawyer, Yves Repiquet, says the investigation is “in no way incompatible” with her duties at the IMF, a lender of last resort to global economies.

The IMF's governing board says it is confident Lagarde will be able to function effectively as IMF managing director despite the investigation. The board also says it discussed the case when considering Lagarde's candidacy for the post, which she assumed last month.

Lagarde stepped down as French finance minister in June to become the first female IMF chief. She replaced Dominique Strauss-Kahn, who quit to face charges of trying to rape a New York hotel maid.

The legal dispute began when Tapie accused then-state-owned bank Credit Lyonnais of mishandling the 1993 sale of his stake in sports clothing maker Adidas.