Former IMF chief Dominique Strauss-Kahn has been put under formal investigation by a French court over his alleged role in a prostitution ring.
Richard Malka, a lawyer for Strauss-Kahn, said he has been handed preliminary charges charged of "aggravated pimping as part of an organised gang" after investigating judges questioned him for several hours on Monday.
Under French law, preliminary charges mean authorities have reason to believe a crime was committed but allow more time for investigation.
The move is an escalation of the case against the Socialist ex-finance minister but falls short of a formal charge.
Strauss-Kahn has denied the allegations against him, arguing that he was unaware women he met at parties organised by business associates in Lille, Paris and Washington were prostitutes.
Richard Malka said Strauss-Kahn denies wrongdoing and it is wrong to prosecute him for "simple libertine activity".
Prosecutors said that the 62-year-old one-time presidential favourite had been released on $135,000 bail following Monday's charges for an offence that could carry as many as 20 years in prison if convicted.
"Dominique Strauss-Kahn was placed under judicial control and was forbidden from contacting defendants, civil plaintiffs, witnesses and the press regarding the procedures," prosecutors said in a statement.
Strauss-Kahn's name came up as police were investigating a pimping operation that saw sex workers from brothels over the Belgian border being brought to France for orgies in high-class hotels in Lille and Paris.
Hiring sex workers is not illegal in France, but prosecutors are seeking proof that Strauss-Kahn was aware the parties were arranged by an organised pimping ring and paid for by other guests misusing company funds.
Several Lille-based businessmen and police officers have been accused of taking part in the ring.
US civil case
Strauss-Kahn quit the IMF after a New York hotel maid said he sexually assaulted her in May. The charges were later dropped.
However, his lawyers will also be in court on Wednesday in New York for the first hearing in a civil case brought against him by Nafissatou Diallo, the hotel maid.
Judge Douglas McKeon will be asked to rule on a motion by Strauss-Kahn's lawyers urging him to dismiss the case on the grounds that, at the time of the alleged attack in May last year, their client had diplomatic immunity.
McKeon has said he will give a written judgment on whether the case can go forward within a few weeks.
If he accepts the motion, Strauss-Kahn's US legal woes may be over. If not, Diallo's case for damages will go forward.
These two cases are the most serious threats facing Strauss-Kahn after the dismissal of two earlier criminal investigations that were brought against him in the United States and in France after his fall from grace.
First, criminal charges relating to 32-year-old Diallo's complaint that Strauss-Kahn attacked her in his suite in a New York Sofitel hotel on 15 May were dropped after prosecutors came to doubt the reliability of her testimony.
After that case fell apart, Strauss-Kahn returned to France, only to face an accusation from 32-year-old author Tristane Banon that he had tried to rape her in 2002.
French investigating magistrates questioned Strauss-Kahn and his accuser and concluded that, while there was prima facie evidence of a sexual assault, the alleged attack had occurred too long ago to be prosecuted.
Strauss-Kahn admits having a "sexual encounter" with Diallo during the nine minutes she spent in his suite, and told French police that he had tried to kiss Banon, but strenuously denies he used violence in either case.
Until the scandals erupted, Strauss-Kahn was considered the favourite to become the Socialist Party's presidential candidate and the front-runner to defeat incumbent President Nicolas Sarkozy in next month's election.