Japanese prosecutors are considering indicting Olympus Corp as a company for falsifying its financial reports to conceal huge investment losses in a $1.7 billion scandal, Kyodo news agency reported on Sunday, quoting investigative sources.

Tokyo District Public Prosecutors and the watchdog Securities and Exchange Surveillance Commission (SESC) have apparently determined they can make a case against the camera and medical equipment following the Tokyo Stock Exchange's decision last month to keep the company listed, Kyodo said.

Olympus is likely to be indicted as a corporation when prosecutors charge chairman and president Tsuyoshi Kikukawa, 70, and six other people arrested last week, Kyodo said.

The company would face up to 700 million yen ($8.82 million) in penalties if found guilty, Kyodo said.

Tokyo prosecutors Thursday arrested Kikukawa, former executive vice president Hisashi Mori and former auditor Hideo Yamada on suspicion of violating the Financial Instruments and Exchange Law, officials said Thursday.

Also apprehended were former bankers Akio Nakagawa and Nobumasa Yokoo and two others suspected of helping hide huge investment losses through complex takeover deals.

The three former executives had been identified by an investigative panel, commissioned by Olympus, as the main suspects in the fraud, seeking to delay the reckoning from risky investments made in the late-1980s bubble economy.

The scandal was exposed in October by chief executive Michael Woodford, who was sacked by the Olympus board after querying dubious deals later found to have been used to conceal the losses.

Woodford campaigned to win his job back, but gave up that bid last month, blaming cozy ties between management and big Japanese shareholders and citing the strain on his family.

Olympus is counting on an April 20 shareholders' meeting to mark a turning point in the scandal, with at least six of its 11-member board, including its current president, set to resign.

Olympus in December filed five years' worth of corrected financial statements plus overdue first-half results, revealing a $1.1 billion dent in its balance sheet, triggering talk it would need to merge or forge a business tie-up to raise capital.

Last Monday it forecast a $410 million full-year loss due largely to its ailing camera operations.

Its core endoscope business appeared unscathed by the scandal and its president said the firm might not need outside capital.

(reporting by Linda Sieg)