NCT Controller described a conflict event between a T38 and a B737 operating near SMF when the T38; instructed to remain above and behind the B737; elected to descend through the occupied altitude.

Narrative

A T38 was northeast bound to BAB restricted at 3500 FT on a course to pass behind a B737 and just south of SMF. The B737 was on the WRAPS5 arrival at 3000 FT under control of the Final Controller. Traffic was issued to the T38 on the B737 and reported insight. The EXPO (East SMF Departure) Controller advised me to keep the T38 out of the departure area. I advised the T38 and asked him to pass behind the B737 and fly northwest bound or keep the B737 to his right and fly northwest bound. The T38 replied he was already behind the traffic. While advising the Final Controller of the T38's intentions so they could advise the B737; I did not hear the T38 report that he was 'descending to de-conflict'. I pointed out the T38 to SMF Tower; asked him his altitude. The T38 reported descending through 1700 FT he was 500 FT above and behind the B737 and descended through the B737. I asked the T38 if he could maintain VFR at 1500 FT so he would not climb back through the B737. The T38 response was affirmative. I restricted the T38 to 1500 FT; transferred RADAR and radio communication to the Final Controller. I did not feel there were any procedural or equipment problems. I was advised upon returning to work; that the B737 had filed a NMAC report. Recommendation; T38 was restricted above and advised he was passing behind the B737. Why he decided he needed to descend through the B737 is unclear.