According to FINRA, Steven Kiyoto Hirata was barred from the securities industry for failing to provide information and documents during a regulatory investigation into whether he participated in an undisclosed private securities transaction.

Private securities transactions, sometimes called "selling away," occur when registered representatives engage in securities transactions outside their registered firm's knowledge and supervision. These transactions violate FINRA rules because they prevent the firm from supervising the transaction to ensure it is suitable and appropriate for the customer. Representatives must provide written notice to their firms before participating in private securities transactions, and firms must approve or disapprove such participation.

Private securities transactions are often problematic for investors. They may involve fraudulent investments, Ponzi schemes, or other unsuitable investments that would not pass firm scrutiny. Because these transactions occur outside the firm's supervision, investors lose the protections that come with firm oversight, including the firm's obligation to supervise the representative and conduct due diligence on investments.

FINRA initiated an investigation to determine whether Hirata participated in an undisclosed private securities transaction. Rather than providing the requested information and documents, Hirata failed to respond. This failure prevented FINRA from determining whether a private securities transaction occurred, what type of investment was involved, whether investors were harmed, and whether Hirata received compensation for the transaction.

The failure to provide information is particularly concerning given the nature of the investigation. If Hirata had not participated in an undisclosed private securities transaction, providing information to clear up the matter would have been straightforward. The failure to respond suggests he may have been unwilling to provide information that would confirm the violation.

The sanction of a bar reflects how seriously FINRA treats failures to cooperate with investigations. Without cooperation, FINRA cannot investigate potential violations or protect investors. The bar prevents Hirata from working in any capacity in the securities industry.

For investors, this case emphasizes the importance of conducting all securities transactions through a registered representative's firm, not through separate arrangements. If a financial professional suggests investing in something outside their firm, investors should be extremely cautious and contact the firm's compliance department. Investors should also check BrokerCheck to see if their financial professional has any history of undisclosed private securities transactions or failures to cooperate with regulators.