Stephane Richard, the head of telecoms company Orange and a former aide to IMF chief Christine Lagarde, was charged Wednesday in a corruption probe related to Lagarde's time as France's finance minister, AFP reports.
In a development likely to be seen as further weakening Lagarde's position at the helm of the global lender, Richard was placed under formal investigation for fraud as part of an organised gang.
The crime is considered a very serious one in France and it carries a maximum potential sentence of ten years in prison and a million euro fine.
The board of Orange will meet in the next few days to decide whether Richard will have to step down from his role as chairman and chief executive while he fights the charges, aides to Prime Minister Jean-Marc Ayrault said.
Richard's lawyer Jean-Etienne Giamarchi said he would file a motion to have the charges dropped, which his client considered "ludicrous".
The French state is a major shareholder in Orange, which was formerly France Telecom.
Richard was Lagarde's chief of staff when, in 2008, she sanctioned a state payout of 400 million euros ($515m) to disgraced tycoon Bernard Tapie.
Lagarde is suspected of having rigged the process that led to the payout, thus ensuring Tapie would get the cash in return for supporting her boss, Nicolas Sarkozy, in his successful 2007 presidential election campaign.
The IMF chief was questioned for two days in May about her role in the affair. She was not placed under formal investigation -- the French equivalent of being charged in other legal systems -- but she remains what is termed an "assisted witness", which means judges can summon her for further interrogation at any time.
The cash payout to Tapie, who served a prison sentence for match-fixing during his time as the president of France's biggest football club, Olympique Marseille, related to a dispute between the businessman and partly state-owned bank Credit Lyonnais over his 1993 sale of sports group Adidas.
Tapie claimed that Credit Lyonnais had defrauded him by intentionally undervaluing Adidas at the time of the sale and that the state, as the bank's principal shareholder, should compensate him.
Lagarde was responsible for referring the issue to a three-man arbitration panel, which ruled in Tapie's favour.
One member of the panel, Pierre Estoup, 86, was placed under formal investigation last month on the same charge that Richard now faces.
Also charged on Wednesday on the same count was Jean-Francois Rocchi, former president of the CDR, an ad hoc structure created by the state in 1995 to settle the debt of the then-struggling Credit Lyonnais bank, which dealt with Tapie during the legal dispute and through whom the cash payout was made.
The International Monetary Fund's executive board has repeatedly expressed confidence in Lagarde and said there is no reason for her to step aside from her duties while the corruption case is being concluded.
That stance will inevitably be tested should Lagarde be placed under formal investigation.
Critics of Lagarde's decision to send the Tapie case to arbitration say that, even if there was no shady motive, she should not have run the risk of the state being forced to pay compensation to a convicted criminal who was bankrupt at the time.
Lagarde, 57, has always maintained that she acted in the best public interest and her supporters have pointed out that she had inherited the arbitration idea from her predecessor at the finance ministry.