Anytime The Wall Street Journal’s news pages can make the editorial side spit up their eggs benedict, well, that has the makings of a good story to me.

The paper does that today with an excellent page-one investigation of oddly well-timed stock-option grants—a theme that reporter and editor Mark Maremont (Audit Interview here) has been hitting for three years now.

He reports on the phenomenon of companies handing out generous stock options to executives in the midst of negotiations to be acquired. The problem with that, of course, is that companies who are acquired almost always see their stock prices jump (the acquirers? Well, that’s a different story).

So, while Maremont’s other stock-option stories have been primarily about backdating, which were accounting-fraud crimes, this raises the question of insider-trading, always problematic with corporate executives and their stock transactions, but particularly so when they’re getting the jump on nonpublic information that will move a stock higher than just about any other news could.

The Journal found six suspiciously timed options grants in a review of filings in the last couple of years. And it reports on an upcoming academic study that found a pattern of red flags in the filings (emphasis mine):

Their paper, which has been presented at academic conferences but not yet published, examined 110 deals between 1999 and 2006 in which target company CEOs were given unscheduled stock-option grants while takeover discussions had started but hadn’t yet been made public. The authors defined unscheduled grants as those awarded more than two weeks away from the anniversary of any grant in the prior three years.

The researchers concluded that the grants were “systematically timed” to benefit the CEOs, and that companies that engaged in the practice on average got lower takeover premiums than those that didn’t. The average CEO received an extra $5.7 million from these grants, the researchers said.

Now, why would they get lower takeover premiums than companies that didn’t cheat? Seems to me it’s because the executives were less willing to hold out for a higher price since they’re sitting on newly minted pure windfall profit.

Late this month, shareholders of Teppco Partners LP, a publicly traded oil-and-gas pipeline concern based in Houston, are scheduled to vote on an all-stock bid by a related company, Enterprise Products Partners LP, initially valued at $3.3 billion. According to a regulatory filing, talks started Feb. 17, 2009.

Teppco traditionally grants options in May, and indeed did so this year. But it also granted an extra batch on Feb. 23, the same day merger talks reached the point that a confidentiality agreement was signed. Six top executives received a total of 154,000 options.

You see, those options aren’t just free money invented out of the air. The $2.3 million the WSJ says they’ll gain from that, um, well-time grant is coming out of the pockets of the companies’ other shareholders. Period.

In this case, they won’t be able to cash out for four years, which means they still at least have some risk, although they’ve got a nice 48% gain to cushion that at a time when the market’s about 30 percent off its peak. But some execs don’t even have to do that:

Often top executives can cash out their newly issued options when deals close. That was the case at Birmingham, Ala.-based Compass Bancshares Inc., which was purchased for $9.6 billion two years ago by Spain’s Banco Bilbao Vizcaya Argentaria SA.

According to Compass’s filings, its then-CEO, D. Paul Jones Jr., traveled to Spain for initial discussions in mid-January 2007. On Jan. 23, he was awarded 188,000 new options at $59.80, less than eight months after his prior grant. Nine other Compass executives were granted options.

The deal was announced in mid-February. When it closed, Mr. Jones received $68.11 per share in cash, or $1.6 million, for his new options, filings show, while other Compass executives received a total of $2.2 million.

That’s gross. Great reporting by the Maremont and the Journal.

I think I just heard Holman Jenkins’ head explode.

If you'd like to get email from CJR writers and editors, add your email address to our newsletter roll and we'll be in touch.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.