MIL T38 CLBED 900 FT ABOVE ASSIGNED ALT CAUSING AN ACR MD80 TO TAKE EVASIVE ACTION.

Narrative

THE MD80; ACR Y; WAS AT FL290 NBOUND. THE T38; ACFT X; WAS CLBING NEBOUND TO AN ASSIGNED ALT OF FL280. CONFLICT ALERTED WAS ACTIVATED AS ACFT X CLBED THROUGH THE ASSIGNED ALT. MODE C INDICATED FL284 AS I ASKED ACFT X TO SAY ALT. THE PLT HESITATED; THEN RESPONDED THAT HE WAS AT FL280. ACR Y ADVISED THAT THEY HAD A TCASII ALERT AND WERE CLBING TO AVOID TFC; AT THE SAME TIME THE MODE C OF ACFT X INDICATED HE WAS CONTINUING HIS CLB; FINALLY LEVELING AT FL289.THE TARGETS APPEARED TO MERGE WITH 700 FT VERT SEPARATION (DUE TO ACR Y'S EVASIVE MANEUVER). I AGAIN ASKED ACFT X TO SAY ALT AND HE CLAIMED FL280; THOUGH MODE C STILL INDICATE 900 FT HIGH. A COUPLE MINS AFTER THE 2 ACFT PASSED; ACFT X SHOWED LEVEL AT FL280. MYSELF; AS WELL AS OTHER ATC PERSONNEL INVOLVED IN THIS INCIDENT HAD THE FEELING THAT THE PLT WAS MISREPRESENTING HIS ACTUAL ALT. I WAS RELYING ON THE MIL PLT TO TAKE ACTION TO CORRECT THE APPARENT CONFLICT SINCE HE HAD THE BETTER PERFORMING ACFT AND SEEMED TO BE AT THE WRONG ALT. I WAS VERY DISMAYED TO SEE THAT HE TOOK NO EVASIVE ACTION WHATSOEVER AND CONTINUED DIRECTLY TOWARD THE TFC. ALSO VERY DISTURBING WAS THE LACK OF ACTION ON THE PART OF FAA PERSONNEL TO CHK OUT THE PLT'S CLAIMS OF ERRONEOUS MODE C TO DETERMINE IF THE PLT WAS RESPONSIBLE FOR CREATING THIS DANGEROUS SIT OR NOT.