Lawyers from LKB & Partners representing South Korean investors in two main tokens of Terraform Labs head to the Seoul Southern District Prosecutors Office on Thursday, to file complaints against Do Kwon, the embattled cryptocurrency firm's co-founder and CEO, and co-founder Daniel Shin. (Yonhap)

Prosecutors are looking into whether to bring Ponzi fraud charges against CEO Do Kwon of Terraform Labs, sources said Friday, a day after investors sued him over the shocking crash of the firm's two cryptocurrencies.

In a crash starting last week, Terraform's two main tokens, TerraUSD and sister coin Luna, had registered more than 99.99 percent falls from their highs, wiping out more than $38 billion of investors' money in a week, according to data by CoinMarketCap.

Financial authorities said about 280,000 investors were believed to be holding about 70 billion Luna coins as of late, although the exact size of the damage remains unknown.

On Thursday, five South Korean investors filed criminal complaints against Kwon and co-founder Daniel Shin on charges of fraud and other financial irregularities, saying their combined damages amount to 1.4 billion won ($1.1 million)

According to the sources, prosecutors in charge of the case are looking into whether they can make a Ponzi scheme case against "Anchor Protocol," under which depositors of TerraUSD are guaranteed a 20 percent annual return.

Anchor Protocol, an application facilitating contacts between TerraUSD depositors seeking financial returns and money borrowers, has been seen as instrumental in the recent growth of the stablecoin.

"Kwon's remarks promising returns could provide a key clue," a prosecution official said.

The Seoul Southern District Prosecutors Office in charge of the case plans to assign an investigation team after reviewing the lodged complaints and other factual backgrounds. (Yonhap)