IMF Chief Probed over Ties with Co-Worker

The International Monetary Fund has launched a probe into allegations of improper behavior in relation with a subordinate by its chief, Dominique Strauss-Kahn.

The investigation focuses on whether Strauss-Kahn abused his position in connection with a sexual relationship with a subordinate, in a case that deals a heavy blow to the IMF at a key moment in the world financial crisis.

"I have cooperated and am continuing to cooperate with outside counsel to the Fund concerning this matter," Strauss-Kahn told the Wall Street Journal. He said the "incident which occurred in my private life" took place in January 2008. "At no time did I abuse my position as the Fund's managing director."

The firm of Morgan, Lewis & Bockius was asked to conduct the investigation, which is expected to be completed by the end of the month, the paper said.

The probe was sought by the longest-serving member of the IMF's governing board, A. Shakour Shaalan, who represents Egypt and other Arab countries, with advice from the representatives of Russia and the U.S, according to the Wall Street Journal.

The paper said the probe concerns Strauss-Kahn's relationship with Piroska Nagy, at the time a senior official in the IMF's Africa department. In December 2007, Strauss-Kahn approached Nagy, who is married, for an affair, it said, quoting people familiar with the matter.

The two exchanged emails who were later found by Nagy's husband, Mario Blejer -- a prominent economist who has worked at the IMF and subsequently the relationship ended, the Wall Street Journal said.

Nagy resigned from the IMF in August as the institution was reducing the size of its workforce. She was not given preferential treatment before leaving the IMF, her lawyer said.

Nagy's lawyer, Robert Litt of Arnold & Porter said his client took a buyout package in August, along with other IMF staff in a cost cutting drive, and was not pressured to leave.

"She accepted a severance package that was generally available, and the terms were the same as were available to others of her grade and seniority," Litt said in an e-mailed response to Reuters.

"She received no special treatment of any kind, either favorable or unfavorable, and she was not pressured to leave," he said.

She is now working as an economist at the European Bank for Reconstruction and Development in London. The EBRD was not aware of the IMF investigation, a spokesman said.

The investigators are looking at whether Nagy's severance package was outsized for a person of her position and tenure. Nagy was an Africa specialist, and in April 2008 led an IMF mission to Ghana to discuss the country's economic policies.

The probe comes 15 months after the president of the World Bank, Paul Wolfowitz, resigned under pressure because of alleged favoritism to a World Bank employee with whom he had a long-standing relationship.

On Sunday, European Central Bank President Jean-Claude Trichet said he was convinced that the investigation would show he did not abuse power.

In an interview on RTL radio, LCI Television and Le Figaro newspaper Trichet also said the IMF had a major role to play in solving the financial crisis.

-- Reuters contributed to this story