The 72-year-old managing director of the K1 group shot himself in his villa on the Spanish island of Majorca on Saturday.
“He put a bullet through his head when he saw the police coming to arrest him,” said a police officer. “He fell into the water.”
Frerichs’ house was on a rocky ledge overlooking the sea.
The alleged K1 ponzi scheme is thought to have run into hundreds of millions of euros and has been likened to the Madoff scandal in the United States.
The hedge fund group was registered in the British Virgin Islands. It had attracted the attention of Germany’s financial sector watchdog BaFin since June 2004.
German lawyer Klaus Nieding told AFP in October he feared a “new Madoff case,” saying: “Estimations of damages run from €500 million to €1 billion, of which half involves institutional investors.”
The French bank BNP Paribas is among the investors concerned and an investigation has also begun in the United States.