As CleverNickname said that’s not really a grenade, it’s just a big (low powered) buckshot round. Supposedly these were phased out because they were to wimpy and replaced with reducer bushings that could accept 12ga shells. These buckshot rounds were only intended to give the M79 gunner something to shoot back with since at close range (closer than the grenades arming distance) the 40mm was useless. Now that M203s are used the user always has 5.56mm at his disposal.
Civilians usually use a 40mm beehive round to simulate buckshot on the cheap. These take 18 or 20 .22lr rounds and use a rifle primer to fire them all off at the same time. They can be reloaded and reused as many times as you’d like.
As for these being legal, you can buy any live DD ammunition you want as long as it contains no more than ¼ oz of explosive. The M407 was a HE practice round which had just barely under ¼ oz of explosive:
http://www.inetres.com/gp/military/infantry/grenade/40mm_ammo.html#M407A1
It has now been replaced with the orange chalk rounds.
Rumor has it Long Mountain Outfitters has the real deal M406 HE rounds but there is a $200 tax plus the cost of each round. In addition to this you need some kind of explosives user license issued by your state as well as an approved magazine to store them.
No one is really sure if you could just register the case, fire the round (an HE round that is – let’s just say M406) and then send it back to the manufacturer for repairs where they would re-prime the case and seat a fresh grenade. You can do this with a silencer if it is damaged or a machine gun as long as you don’t destroy the tube or remanufacture the receiver so I think if you registered the case it’s self (as opposed to the grenade) it could be technically “repaired” by the manufacturer. If you did it on a form 1 you would be the manufacturer and you could reload it with whatever you wanted. You would still have to comply with state explosives laws however.
For the record I have no LE / military experience and am not an FFL. I do however have a registered LMT 40mm DD. I’m not claiming to be an expert, just reporting what I have learned over the years.
Dan