Police have since recovered tens of thousands of euros, many of which seem to have been cut before being flushed.
Thousands of Swiss francs have now reportedly been spent on unclogging pipes blocked with notes.
Destroying banknotes is not a crime in Switzerland, but Swiss prosecutors have been left baffled by the incident.
Henri Della Casa, a spokesman for the Geneva prosecutor's office, told Bloomberg: "There must be something behind this story. That's why we started an investigation."
The European Central Bank is phasing out the 500-euro note, which will officially go out of circulation by the end of 2018. The move comes after concerns were raised that the notes are largely being used for illegal activities like money laundering and smuggling.