"We are receiving more and more calls (about the fund),'' said lawyer Klaus Nieding, who specialises in defending financial investors.
"We can speak of a new Madoff case; the sums are certainly not as large, but on a German scale it is already very big," Nieding said, referring to Bernard Madoff, convicted of massive fraud in a US case.
"Estimations of damages run from €500 million to €1 billion euros, of which half involves institutional investors," Nieding said.
K1 founder Helmut Kiener was incarcerated late Thursday.
Prosecutors in the southern city of Würzburg suspect Kiener of "not respecting investment instructions given by a British bank and a French bank."
They are also investigating allegations of fraud and embezzlement, a statement said.
The French bank BNP Paribas is among the investors concerned and an investigation has also begun in the United States.
The German financial market watchdog BaFin has been checking on K1 since at least June 2004, when it forbade the firm from operating in Germany.
K1 was organised as a holding company for several speculative hedge funds.