The sexual assault case against former IMF chief Dominique Strauss-Kahn was close to collapse on Friday, sources close to the case said, in a dramatic turnabout that could upend French politics again.
Strauss-Kahn, 62, was a steward of the world economy and a leading candidate for next year's French presidential election until he was arrested on May 14 and charged with the attempted rape and sexual abuse of a hotel maid in New York.
A source familiar with the probe told Reuters that prosecutors now had doubts about the maid's credibility as a witness.
The arrest forced his resignation from the International Monetary Fund and ended his presidential hopes, weeks before he had planned to declare his candidacy.
Strauss-Kahn's supporters in the French Socialist party voiced delight at the apparent reversal and some said they hoped he might re-enter the 2012 presidential race.
But political analysts said his reputation had been too tarnished for him to be a presidential contender, although he could play an influential political role if cleared.
"Even if what he did was not criminal, all this is going to take time," said Christophe Barbier, a political commentator and editor of L'Express weekly.
"There is everything we have learned about him, the damage to his reputation. All this makes the idea he could be a candidate very hypothetical, it's science fiction."
From the start, the case hinged on the purported victim, a 32-year-old Guinean immigrant who cleaned the $3,000-a-night suite at the Sofitel hotel in Manhattan where Strauss-Kahn was staying.
The New York Times quoted a source close to the investigation as saying the housekeeper had lied repeatedly and prosecutors no longer believed her account of the circumstances of the sexual encounter or of her own background.
Police and prosecutors initially trumpeted her credibility, confident in the woman's story that the former IMF chief emerged naked from the bathroom, chased her down the hall and forced her to perform oral sex on him. Evidence showed that semen was found on her uniform collar, a source close to the investigation said.
But defense lawyers challenged the claim of a violent assault, suggesting a defense built on consensual sex.
Another source close to the case said that the district attorney's office took the case to a grand jury without fully checking out the woman's bona fides.
"Just about everything that was reported on this woman early on was untrue but no one checked or wanted to believe anything else," the source told Reuters.
The New York Times reported that prosecutors met with Strauss-Kahn's lawyers on Thursday and the parties were discussing whether to dismiss the felony charges.
It said Strauss-Kahn could be released on his own recognizance and freed from house arrest. Strauss-Kahn was due back to court in New York on Friday to seek changes to his bail conditions, defense attorney Benjamin Brafman said.
Strauss-Kahn resigned from the IMF on May 19 and pleaded not guilty on June 6, vehemently denying the allegations. He faces up to 25 years in prison if convicted.
With his resignation, Strauss-Kahn severed all his ties to the IMF. Christine Lagarde, who has just stepped down as French finance minister, takes over the top IMF job on Tuesday.
His arrest prompted agonized debate in France on gender equality and a media tradition of respecting the privacy of politicians' sex lives.
PERP WALK IRKED FRENCH
After his arrest, Strauss-Kahn was paraded handcuffed before cameras in a "perp walk" that drew outrage in France, where the American tradition was viewed as barbaric.
Some commentators suggested that Strauss-Kahn, known as the "great seducer" of French politics, could have been set up by opponents or in a extortion bid. An opinion poll found half the French public initially believed he was the victim of a plot.
The front-runner in the polls for the April 2012 presidential race before his arrest, Strauss-Kahn had been widely expected to challenge President Nicolas Sarkozy.
His arrest opened the field for several other Socialist Party candidates, including party leader Martine Aubry, who trails fellow socialist Francois Hollande in opinion polls.
"This is amazing news for Dominique, for (his wife and former television journalist) Anne Sinclair, for his family. I think they must have the impression this morning that they are waking up from a terrible nightmare," Socialist lawmaker Jean-Marie Le Guen, who is close to Strauss-Kahn, told French television on Friday morning.
"All those who believed in Dominque's innocence, and in the fact that the elements as they were reported were incompatible with his personality, will feel vindicated," he said.
Some analysts said that if fully cleared, Strauss-Kahn could lend economic credibility as an adviser to a Socialist candidate and might eventually emerge as a contender to be prime minister or finance minister.
The New York Times quoted two well-placed law enforcement officials as saying prosecutors had found issues with the asylum application of the accuser and possible links to criminal activities, including drug dealing and money laundering.
They had also discovered that the woman had made a phone call to an incarcerated man within a day of her encounter with Strauss-Kahn in which she discussed the possible benefits of pursuing the charges against him, the paper said.
The conversation was recorded. The man was among a number of individuals who had made multiple cash deposits, totaling around $100,000, into the woman's bank account over the last two years, the New York Times said.
After a few nights in New York's notorious Rikers Island jail, Strauss-Kahn was allowed to post $1 million cash bail and a $5 million bond. He is now under house arrest in Manhattan, equipped with an electronic monitoring device and under the 24-hour watch of armed guards.