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At Union Station, Grundfest divided this into "symmetric spring-loading," where the members of the board of directors who approve the grant are fully aware of the good news to come, and "asymmetric spring-loading," where they are not.

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As Grundfest reeled off these terms, I and the reporter sitting next to me giggled, mainly because they sounded so much like something from a diving meet.

("She's going to attempt a reverse double asymmetric spring-loader and ... ") But the distinctions may make all the difference, legally speaking.

Take the options-backdating scandal that has claimed such CEO scalps as that of Comverse's (Charts) Kobi Alexander (currently fighting extradition from Namibia), United Health's (Charts) William Mc Guire (ousted after 14 years of spectacular success) or KB Home's (Charts) Bruce Karatz (who voluntarily stepped down and agreed to pay the difference for incorrectly priced grants).

The scandal has its roots in a 1992 SEC decree that companies list in their annual proxy statements the exact dates that they gave stock options to top executives.

"At least some of the official grant dates must have been set retroactively," Lie suggested in a paper.

Fiddling with options grant dates retroactively and lying about it in corporate financial reports is clearly illegal.(Manne disputes the "dustbin" characterization but agrees that board approval is key.) By this reasoning, symmetric spring-loading is entirely legal.Asymmetric spring-loading with ratification might be okay (opinions were mixed at the conference), and asymmetric spring-loading without ratification is fraud.In the meantime, these executives accepted options grants from the board.In a 1968 ruling that became a key building block of insider-trading law, a federal appeals court agreed with the SEC that this spring-loading was fraud, even though the board members said afterward that they didn't mind. Much has changed since 1968, most crucially the entry of economic reasoning into the legal mainstream.Yermack began examining stock prices before and after options grants, and found the eerily consistent pattern displayed (in updated form) in the chart on this page: The average company's stock price dropped in the days before its CEO was given a bushel of options, and rose afterward.

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