IMF's Lagarde says she was not negligent in payout to French magnate

She said the case was far from the only pressing matter to deal with as the global financial crisis erupted

International Monetary Fund chief Christine Lagarde sought on Tuesday to convince judges she was not negligent in signing off on a 400 million euro ($425 million) French state payout to a business tycoon in 2008.

Lagarde, 60, is fighting charges of negligence leading to the misuse of public funds when she approved, while finance minister, a rare out-of-court settlement with magnate Bernard Tapie in a long-running dispute.

The head judge, Martine Ract Madoux, quizzed Lagarde about why in particular she did not ask more questions about 45 million euros in damages included in the settlement while 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 to the 30,000-50,000 euros that parents usually receive in compensation for the death of a child.

Lagarde insisted she had been "shocked, surprised, stunned" by the arbitration ruling, but also said the case was far from the only pressing matter to deal with as the global financial crisis erupted.

"My obsession at the time was to get through the financial crisis that was threatening us," she told the court, adding that she decided not to contest the ruling to stop legal fees from soaring further, and to draw a line under the 15-year dispute.

Lagarde risks up to a year in jail and a fine of 15,000 euros ($15,895) 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 case is being heard before a special court for trying cabinet ministers. The court comprises a panel of 15 judges, including 12 lawmakers from both the lower and upper houses of parliament.

Lagarde argued that 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.