Who’s Minding the Store ‐ Regulating the Securities Industry Securities and Investments Finance Lesson Plan
Performance Objective Students will understand the need for and procedures involved in regulating the securities industry. Specific Objective  Students will identify major agencies and organizations tasked with regulating the securities industry.  Students will understand the components of regulatory provisions.  Students will identify organizations that help encourage investment education. Terms  Securities and Exchange Commission – an agency created by Congress in 1934 to provide disciplinary action for individuals and businesses selling securities  National Association of Investors Corporation (NAIC) – set up in 1951 with the purpose of encouraging and supporting investor education  National Association of Securities Dealers (NASD) – an organization that originally regulated the NASDAQ stock market  Financial Industry Regulatory Authority (FINRA) – the agency made up of the former NASD and the regulatory agency of the New York Stock Exchange; created in 2007  Securities Investor Protection Corporation (SIPC) – an organization that reimburses investors their cash or other securities in the event that the investing individual or organization goes out of business  Chartered Financial Analysts Institute Code of Ethics and Professional Conduct – a standards code for investment professionals that emphasizes high ethical standards, professionalism, and competence in investing  Blue Sky laws – laws created by states to protect investors from fraud Time When taught as written, this lesson should take approximately 4‐5 class periods to complete. Preparation
TEKS Correlations: This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result in the elimination of any or all of the TEKS listed. 130.164 (c) Knowledge and Skills (1) The student describes and abides by laws and regulations in order to manage business operations and transactions in the securities and investments industry. The student is expected to: (A) explain regulation of the securities and investments industry, including: (i) legal and ethical considerations in buying and selling securities; Copyright © Texas Education Agency, 2013. All rights reserved. 1 (ii) (iii) (iv) (v) (vi) (vii) state regulation of the securities and investments industry; the role of the National Association of Securities Dealers in the regulation of securities and investments; regulation of extensions of credit in the securities industry; the nature of the Securities Investor Protection Corporation; taxation issues that impact securities and investments; and the nature of the Chartered Financial Analysts Institute Code of Ethics and Professional Conduct. Interdisciplinary Correlations: English‐English I  110.31(b)(1) … understand new vocabulary and use it when reading and writing.  110.31(b)(11)(B) … analyze factual, quantitative, or technical data presented in multiple graphical sources.  110.31(b)(23)(C) …use graphics and illustrations to help explain concepts where appropriate. Math‐Algebra I  111.32(b)(1)(E). Interpret and make decisions, predictions, and critical judgments from functional relationships. Social Studies‐World Geography  113.34(c)(20)(A) Describe the impact of new technologies, new markets, and revised perceptions of resources. Occupational Correlation (O*Net – www.onetonline.org/): Job Title: Financial Examiners O*Net Number: 13‐2061.00 Reported Job Titles: Tasks: Establish guidelines for procedures and policies that comply with new and revised regulations and direct their implementation Recommend actions to ensure compliance with laws and regulations, or to protect solvency of institutions. Review applications for mergers, acquisitions, establishment of new institutions, acceptance in Federal Reserve System, or registration of securities sales to determine their public interest value and conformance to regulations, and recommend acceptance or rejection. Soft Skills: Critical Thinking, Management of Personnel Resources, Coordination Accommodations for Learning Differences It is important that lessons accommodate the needs of every learner. These lessons may be modified to accommodate your students with learning differences by referring to the files found on the Special Populations page of this website. Copyright © Texas Education Agency, 2013. All rights reserved. 2 Preparation  Review and familiarize yourself with the terminology, the website links, and the outline.  Go through the activities and games on the websites to be able to lead students.  Practice the Fraud Scene Investigator game and review the Teacher Guide so you are familiar with what the students will be doing online. References  Texas State Securities Board. (n.d.). Retrieved from www.ssb.state.tx.us/Texas_Securities_Act_and_Board_Rules/  North Carolina Department of the Secretary of State. (n.d.). Frequently asked questions. Retrieved from www.secretary.state.nc.us/sec/secfaqforinvestors.aspx  U.S. Securities and Exchange Commission. (2005). Retrieved from www.sec.gov/answers/statesecreg.htm  (2001). Investing in your future. Southwestern Educational Publishing.  Missouri Investor Protection Center. (n.d.). Retrieved from http://www.sos.mo.gov/securities/mipc/  Fraud Scene Investigator. (n.d.). Retrieved from http://www.wvsao.gov/suitableinvestments/  Arizona Corporation Commission. (2012). Investor resources. Retrieved from http://www.azinvestor.gov/Youth_and_Educators_Teaching_Guides_and_Videos.asp  Arizona Corporation Commission. (2012). Investor resources. Retrieved from www.securities.arkansas.gov/userfiles/IPTfor%20web.pdf  Financial Industry Regulatory Authority. (2012). Retrieved from http://www.finra.org/ Instructional Aids  Lesson Presentation  Instructor Computer/ProjectionUnit  Online Websites Introduction
The main purpose of this lesson is to help students understand:  The need for regulation and guidelines for those who are investing other people’s money Ask students what they think possible consequences could be if there were no guidelines or regulations regarding how people and businesses invested their money. Ask students if they have heard of any cases in the news of famous people who have been convicted of securities fraud. In pairs have students conduct Internet research regarding these types of fraud cases. The instructor may initiate a discussion of Martha Stewart and the particulars involving her case. Copyright © Texas Education Agency, 2013. All rights reserved. 3 Outline
I. Regulating the Securities Industry A. Securities Act of 1933 1. “truth in securities” law 2. Requires disclosure of information on securities for sale B. Securities Exchange Act of 1934 1. Congress created SEC 2. Provides disciplinary action for people selling securities C. Investment Company Act of 1940 1. Discloses information about mutual funds 2. Regulates investment company structure II. Regulations (continued) A. Investment Advisers Act of 1940‐
requires individuals who sell securities to register with the SEC B. Sarbanes‐Oxley Act of 2002 1. Created the “Public Company Accounting Oversight Board” 2. Mandates corporate responsibility and ethics in accounting III. Regulations (continued) A. Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010‐improves regulatory oversight and disclosure involving investing and other consumer activities Although stocks have been traded since the late 1800s, there was not much in the way of regulating the sale of these securities. The SEC was created in 1934 and is still a driving regulatory force in the securities industry today. There are many other acts created to protect the public, as shown in the presentation. Search online for details of Martha Stewart’s SEC fraud case and discuss with students. The Sarbanes‐Oxley Act was created as a result of the ever‐increasing incidents of corporate fraud that were harming investors and causing huge financial losses (e.g., Enron). Have students look online for corporate fraud cases and have them volunteer responses. Multiple Intelligences Guide Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2013. All rights reserved. 4 Verbal/Linguistic Visual/Spatial B. Jumpstart Our Business Startups Act of 2012 (JOBS) 1. Makes it easier for small businesses to raise capital 2. Eases security regulations regarding crowdfunding ( when a group of individuals provide financing for entrepreneurs) IV. Regulations (continued) A. NASD 1. Administered exams for securities professionals 2. Presided over NASDAQ B. FINRA 1. Merged with NASD in 2007 2. Stands for Financial Industry Regulatory Authority V. State Regulations A. Texas State Securities Board 1. Created the Texas Securities Act requiring registration 2. Also provides investor education B. All states have securities regulations called “Blue Sky Laws” VI. Types of Fraud A. Affinity fraud 1. Targets a group of people 2. Scammer tries to empathize with the group B. Baby Boomer fraud 1. Target people caring for This act helps small businesses but it relates to securities in that before it loosened regulations on raising capital, it had to look at the regulations to see what could be done. Thanks to regulations, people who sell securities and investments must take exams, be licensed, and registered. In addition to federal regulations, state regulations exist as well. All states have regulations and provide investor education as well. Show students the North Carolina Secretary of State website and show them the list of publications regarding types of scams and fraud. Ask them if they have heard of any in the news. Have Multiple Intelligences Guide Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2013. All rights reserved. 5 Verbal/Linguistic Visual/Spatial VII. elderly parents 2. Also target people at or nearing retirement C. Ponzi or pyramid scheme ‐ only people who invest early (in a fictitious investment) make money, the others lose money Unethical Corporate Behavior/Fraud A. Enron B. WorldCom C. Tyco students go online in pairs and search for well‐known cases of fraud and scams. They can also play the Fraud Scene Investigator game online to become aware of how to avoid scams. Research the three companies and have students volunteer what is unethical or illegal and write on the board or document camera.
Multiple Intelligences Guide Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Verbal/Linguistic Visual/Spatial Application
Guided Practice  In pairs, have students create a list of goals that they each have, regardless of if they involve money or not. Then, have the pairs circle the items that involve money. Of those, ask them to label whether they are goals that are short‐term or long‐term.  Have students participate in the Investor Scam Games online at the Missouri Secretary of State website above to see if they can recognize investment scams. They will learn more about the different types of investment fraud. Independent Practice  Have students participate in an online fraud game at www.wvsao.gov/suitableinvestments/. Go to http://www.azinvestor.gov/Youth_and_Educators_Teaching_Guides_and_Videos.asp to download the Teachers’ Guide with quizzes for this online game. Copyright © Texas Education Agency, 2013. All rights reserved. 6 Summary
Review Ask students the following questions during classroom discussion, exit tickets, or as a quiz. Question #1: What two organizations merged to become one regulatory agency? Answer#1: NASD and the NYSE regulatory authority Question #2: What type of fraud targets groups of people with a common interest? Answer#2: Affinity fraud Question #3: When was the Securities and Exchange Commission created? Answer#3: 1934 Question #4: Which act was created after a rash of accounting and investment fraud cases? Answer#4: The Sarbanes‐Oxley Act of 2002 Question #5: Who benefits from a Ponzi scheme? Answer#5: The original investors, which usually are very few. Their income is funded by all of the later investors who think they are actually investing in a security. Evaluation
Informal Assessment Any and all of the following can be used as informal assessments:  Pair‐share activities  Class discussion and participation Formal Assessment  Regulator Acronym Assignment #1 ‐ Students will select any two of the many regulatory agencies they have learned about in this lesson. Then they will place the initials of that organization on a posterboard or on the computer on a word processing document if a lab is available. For each letter they will create a phrase beginning with that letter that describes an aspect of the agency and what it does.  Recognizing Fraud Assignment #2 – In pairs, students will select a brochure relating to frauds and scams located on the North Carolina Secretary of State website. They will create a presentation to present to the class using either presentation management software, an online presentation program, or visuals such as posters and handouts explaining the topic and suggested ways to avoid unethical or illegal behavior.  Letter to the President Assignment #3 – Instruct students to pretend that they are employees of one of the companies that have been discussed regarding fraud and unethical behavior. You have been hurt by the company’s actions so now you are typing a letter, using proper personal‐business letter format, that 1) states your purpose for writing the letter, 2) explains in detail all of the ways the company has hurt you and how you feel about its actions, and 3) a request for some sort of resolution that the company can make to the people who were hurt. Copyright © Texas Education Agency, 2013. All rights reserved. 7 Enrichment
Extension Invite licensed professional from the financial services industry to come and talk to the class and explain the qualifications for this profession and the regulations and guidelines that are a part of this job. Copyright © Texas Education Agency, 2013. All rights reserved. 8 Who’s Minding the Store‐Regulating the Securities Industry Regulatory Acronym Assignment #1 Student Name ______________________ CATEGORY 20 15 8 Required Elements The document includes all required elements as well as additional information. The document includes all required elements. The document Several required includes all but 1 elements were of the required. missing. Knowledge Gained Student thoroughly understands the topic assigned. Student adequately understands the topic assigned. Student somewhat understands the topic assigned. Attractiveness The document is exceptionally attractive in terms of design, layout, and neatness. The document is attractive in terms of design, layout and neatness. The document is The document is acceptably distractingly attractive though messy or very it may be a bit poorly designed. messy. It is not attractive. Mechanics Capitalization There is 1 error and punctuation in capitalization are correct or punctuation. throughout the document. There are 2 errors in capitalization or punctuation. There are more than 2 errors in capitalization or punctuation. Grammar There are no grammatical mistakes on the document. There are 2 grammatical mistakes on the document. There are more than 2 grammatical mistakes on the document. There is 1 grammatical mistake on the document. 1 Maximum Points Possible: 100 Student Points: Copyright © Texas Education Agency, 2013. All rights reserved. 9 Student does not appear to understand the purpose ofthe assignment. Who’s Minding the Store‐Regulating the Securities Industry Recognizing Fraud Presentation Assignment #2 Student Name ______________________ CATEGORY 20 15 8 Presentation shows an attempt at originality and inventiveness on 1‐2 cards. Originality Presentation shows considerable originality and inventiveness. The content and ideas are presented in a unique and interesting way. Presentation shows some originality and inventiveness. The content and ideas are presented in an interesting way. Effectiveness Project includes all material needed to gain a comfortable understanding of the topic. Project includes Project is missing Project is lacking most material more than two several key needed to gain a key elements. elements and comfortable has inaccuracies. understanding of the material but is lacking one or two key elements. Cooperation The pair delegates tasks and shares responsibility effectively all the time. The pair delegates tasks and shares responsibility effectively most of the time. Sequencing of Information Information is Most information Some organized in a is organized in a information is clear, logical way. clear, logical way. logically sequenced. There is no clear plan for the organization of information. Appearance Slides or visuals Slides or visuals Slides or visuals appear appear somewhat lose professional and adequate. audience engaging. interest. Slides or visuals lack professional and/or visual appeal. The pair delegates tasks and shares responsibility effectively some of the time. 1 Maximum Points Possible: 100 Student Points: Copyright © Texas Education Agency, 2013. All rights reserved. 10 Presentation is a rehash of other people's ideas and/or graphics and shows very little attempt at original thought. The pair often is not effective in delegating tasks and/or sharing responsibility. Who’s Minding the Store‐Regulating the Securities Industry Letter to the President Assignment #3 Student Name ______________________ CATEGORY 20 15 8 1 Ideas Ideas were expressed in a clear and organized fashion. It was easy to figure out what the letter was about. Ideas were expressed in a pretty clear manner but the organization could have been better. Ideas were The letter somewhat seemed to be a organized but collection of were not very unrelated clear. It took sentences. It was more than one very difficult to reading to figure figure out what out what the the letter was letter was about. about. Content Accuracy The letter contains at least 4 accurate facts about the topic. The letter contains 3 accurate facts about the topic. The letter contains 1‐2 accurate facts about the topic. The letter contains no accurate facts about the topic. Sentences & Paragraphs Sentences and paragraphs are complete, well‐
constructed, and varied . All sentences are complete and well‐constructed (no fragments, no run‐ons). Paragraphing is generally done well. Most sentences are complete and well‐
constructed. Paragraphing needs some work. Many sentence fragments or run‐on sentences OR paragraphing need lots of work. Capitalization Writer makes no and Punctuation errors in capitalization and punctuation. Format Writer makes 1‐2 Writer makes 3‐4 Writer makes errors in errors in more than 4 capitalization capitalization errors in and punctuation. and punctuation. capitalization and punctuation. The letter The letter complies with all complies with requirements. almost all requirements. The letter complies with several of the requirements. Maximum Points Possible: 100 Student Points: Copyright © Texas Education Agency, 2013. All rights reserved. 11 The letter complies with less than 75% of the requirements.