Wall Street is in the midst of a scandal over lavish gifts by stockbrokers to the people who run multi-billion-dollar mutual funds. Fortunately, federal investigators are on the case. Their immediate target is Fidelity Investments, the nation’s largest mutual-fund operator.

The New York Times broke the story in early May, reporting that the United States attorney in Boston was investigating Fidelity and a number of Wall Street banks, to determine whether the banks’ brokers had “plied Fidelity traders with lavish gifts and decadent entertainment” to try to win some of Fidelity’s lucrative trading business.

The story told of a bachelor party for a Fidelity trader in Miami and said Wall Street brokers paid for a private jet that carried people to the party and a weekend on a yacht, as well as golf junkets and tickets for the Wimbledon tennis tournament.

The pace quickened in July, when The Wall Street Journal began covering the story. In the first of five articles, it added details and spice to the saga. It reported that the bachelor party was for Thomas Bruderman, who was preparing to marry the daughter of L. Dennis Kozlowski, later convicted of looting millions from Tyco International Ltd.

And then there was the dwarf, hired for unspecified “entertainment.” A later Journal story said that the dwarf, 4-foot-2 Danny Black, who offers “rent-a-dwarf” services at $149 an hour, let guests toss him like a Frisbee.

The investigation is far from over. The Securities and Exchange Commission has told Scott DeSano, former head of Fidelity’s stock trading unit, that it is considering civil charges against him. Similar warnings, known as Wells notices, have been sent to other Fidelity traders and to the company itself. Fidelity has fined and reassigned Mr. DeSano and disciplined 14 employees. The company says it does not condone such behavior has been cooperating with the investigation.

Still another Journal story reported that the Jeffries Group had hired Kevin Quinn, an experienced trader with contacts at Fidelity to get new business and gave him a $1.5 million annual expense account. The newspaper reported that Mr. Quinn spent

$1.6 million entertaining Fidelity traders with gifts and junkets. Jeffries fired him last year for allegedly abusing his expense account.

Among questions raised by the expanding scandal are what other financial firms seek new business that way, how such practices can be curtailed, and how much of this lavish spending comes ultimately out of the pockets of trusting investors?

This whole thing looks like a serious case of serial white-collar crime. Self-policing is not enough. Those guilty of what amounts to bribery should be punished as an example to others who may be tempted.