Fifth Third Bancorp says federal regulators have questioned its mutual-fund arm as part of an investigation into a scheme in which 27 mutual-fund investment advisers allegedly defrauded investors.

Fifth Third Funds Inc., corporate parent of Fifth Third's family of 35 mutual funds, disclosed its connection to the probe in a filing with the U.S. Securities and Exchange Commission. Fifth Third Asset Management Inc., a Fifth Third subsidiary and registered investment adviser, manages the funds, in which investors have put $12 billion.

Fifth Third Funds' one-paragraph statement was near the end of the 792-page filing. It doesn't say whether it was involved in any improper arrangements. Fifth Third spokeswoman Debra DeCourcy on Friday said the bank would not comment further.

The disclosure followed a settlement agreement in September between the SEC and Columbus-based BISYS Fund Services Inc., which provides services for dozens of mutual funds, including all of Fifth Third's.

BISYS has provided administrative services for Fifth Third Funds since at least 1998, and the two operations are closely connected. They share the same business address in Columbus. Fifth Third Funds' president, Bryan Haft, and several other officers are employees of BISYS. Several other officers are employees of Fifth Third Bank.

U.S. mutual funds are overseen by boards of trustees, who typically hire advisers to manage and market the funds.

The industry has inherent conflicts of interest, however, because the advisers managing the funds are often tied to banks and other financial institutions that provide services to the funds - and whose clients may also be the funds' major source of invested assets.

Because advisers earn fees based on a percentage of the assets in the funds they manage, they have a potential financial incentive to direct their clients' investments into funds that they manage and to attract other investors to those funds.

In part to limit conflicts of interests, federal law requires that marketing expenses for mutual funds be paid by the advisers and not paid out of fund assets. If such expenses were to be paid out of fund assets, that would reduce the return to investors.

The SEC said BISYS violated that rule by illegally kicking back more than $230 million of its fees from 1999 to 2004 for the benefit of various fund advisers or third parties that the SEC has not identified.

The arrangements were made pursuant to written and oral agreements that obligated BISYS to rebate portions of its fees to the advisers. In return, the advisers promised to recommend BISYS services to their funds' boards of trustees.

The result was that the scheme diverted mutual-fund assets to pay expenses that should have been paid by fund advisers, defrauding the funds' shareholders, the SEC said.

The SEC said BISYS reported the illegal conduct to federal regulators in early 2005 after its current chief executive became aware of it. BISYS agreed to pay $21.4 million, including $9.7 million it had retained illegally, $1.7 million of interest, and a $10 million civil penalty. The money will be used to repay mutual funds. BISYS also agreed to continue cooperating with the commission in future proceedings.

In its filing Nov. 29, Fifth Third said the SEC's inquiries into its arrangements with BISYS hadn't been completed.

Fifth Third Funds' trustees include David Durham, chairman and chief executive of Union Township-based Clipper Products Inc.; and Joseph Hale Jr., president of the Cinergy Foundation, a Duke Energy consultant and a former president of Cinergy Corp. Neither could be reached for comment Friday.

Ed Carey, president of Columbus-based Carey Realty Investments Inc. and chairman of Fifth Third Funds' board of trustees, did not return numerous messages left at his Columbus office. John Jaymont, another trustee reached at his office in Columbus, said he couldn't comment on the matter.

Dr. James Masters, a Cincinnati radiologist at Christ Hospital who's on the board of a charitable foundation that invests in Fifth Third mutual funds, said he was upset about the matter but didn't want to blame Fifth Third if it didn't do anything wrong.

"It raises serious questions ... if they're guilty," Masters said. He intends to bring the matter up at the foundation's next board meeting, which a Fifth Third representative regularly attends, he said.

Masters guessed that the bank isn't saying much to investors because that's what its lawyers are telling it to do. "There's no communication, basically, and there should be," he said.