Edward C. Johnson III is the very model of a Boston Brahmin billionaire -- a pillar of Yankee discretion and probity whose wife is active at the Society for the Preservation of New England Antiquities and whose family happens to own Fidelity Investments, the nation's largest mutual fund company.

So one can only imagine Johnson's reaction when it became known recently that the Securities and Exchange Commission, as part of a kickback investigation, was looking into who paid for a bachelor party for a Fidelity trader that reportedly featured paid escorts and "dwarf tossing" -- a party game that apparently involves throwing a dwarf in a Velcro suit at a Velcro-covered wall. Johnson also got caught up in the probe, having benefited from two free tickets to the ice-skating competition at the Salt Lake City Olympics from a brokerage firm with which Fidelity does business.

I doubt that anyone thinks Ned Johnson is a "dwarf tossing" aficionado or that he can be bought for $800 in skating tickets. What is interesting to consider, however, is whether Johnson helped spur the SEC probe by getting into a public spat with the agency and its recently departed chairman, William H. Donaldson.

The Yale-educated Donaldson and the Harvard-educated Johnson are tough old coots who started sparring more than a decade ago, when Donaldson headed the New York Stock Exchange and Johnson's Fidelity began complaining that the exchange was abusing a government-guaranteed monopoly to overcharge for its services. Fidelity wanted to bypass the NYSE and its floor specialists in favor of cheaper and more confidential automated trading system, like that operated by Nasdaq.

But Donaldson -- who in effect represented New York's traders and brokers against the old-line money managers of Boston, Philadelphia and Baltimore -- warned regulators that in a computerized trading system, individual investors could not be assured that their trades would be executed in a timely fashion or at prices as good as those enjoyed by big players such as Fidelity. In the end, the New Yorkers prevailed.

Fast forward to 2004. On the heels of an investigation of self-dealing by floor specialists, Fidelity once again pushed for reforms that would have allowed investors to take their trading elsewhere. And once again, there stood Donaldson effectively defending the NYSE franchise. Hoping to turn things around, Fidelity and other institutional investors took their case to the White House, Republicans in Congress and the Wall Street Journal editorial page, all of whom pressured Donaldson to switch sides. But the only effect was to push Donaldson to find a "reform" the NYSE could live with.

While all that was going on, the SEC was dealing with embarrassing revelations about after-hours trading by mutual funds for favored clients. A year before, Donaldson had defied Fidelity and the industry in pushing through a rule requiring mutual funds to disclose their votes on corporate proxy issues -- a rule that threatened to expose the cozy relationship between the funds and corporate managers. Now, in the wake of the scandal, the industry was forced to hold its collective nose and accept a long list of other Donaldson-backed reforms. But at Fidelity, Johnson drew the line at a proposal requiring that three-quarters of mutual fund directors, including the chairman, be independent of the mutual fund management.

The problem Donaldson was trying to solve was the inherent conflict of interest at Fidelity and other fund companies between the obligation to maximize returns to fund investors and the obligation to maximize their own profits. As Donaldson saw it, only a truly independent board could protect the interests of fund investors. As Johnson saw it, however, the SEC was overreaching its authority in a way that would strip him of control over the family firm. Once again, Fidelity appealed to the White House, Congress and the Wall Street Journal. Once again, Donaldson held his ground.

This time, however, Johnson upped the stakes. He sent a sizable check to the U.S. Chamber of Commerce, whose Litigation Center had been looking for a high-profile opportunity to challenge the SEC's rulemaking authority. The chamber's suit was filed late in 2004. And this spring, the U.S. Court of Appeals in Washington -- which in recent years has never met a regulation it liked -- threw out the mutual fund directors rule after finding that the SEC had failed to perform the cost-benefit analysis required for new regulations.

By then, Donaldson had already announced his resignation and was cleaning out his desk. But it tells you how personally invested he had become in the issue -- and in standing up to Fidelity's legal and political challenge -- that he insisted on pushing through a second version of the rule at his final meeting in June, over the bitter objections of Republican colleagues.

I doubt this feud between Bill Donaldson and Ned Johnson has anything to do with the decision by the SEC's enforcement staff to investigate kickbacks to Fidelity's trading desk. The probe grew naturally out of an investigation of another firm, and Donaldson had nothing to do with it.

But it's fair to note that the natural instinct of any government agency is to protect its prerogatives and signal to those it regulates that it cannot be bullied. The lesson from Fidelity may be that any company that decides to play hardball with its regulators might first want to check if it has any dwarf-tossers in its midst.

Steven Pearlstein can be reached at pearlsteins@washpost.com.

Fidelity's Edward C. Johnson III has been sparring with William Donaldson for years.