A lawsuit over an unregistered trading arrangement must go to trial to determine whether an investor was misled or not, an Ontario court has ruled.

Aggrieved investor Vineeth Stephen brought a suit against VRK Forex Investments Inc. and its director, Radhakrishna Namburi, after entering an arrangement that saw Stephen lose most of the money he invested.

According to a decision from Ontario’s Superior Court of Justice, Stephen met Namburi at an investment conference in Toronto. After that meeting, they entered an agreement where Namburi would trade securities on Stephen’s behalf, splitting the profits 50/50.

The agreement disclosed that Namburi was not registered with the Ontario Securities Commission (OSC).

In 2016, as part of a settlement with the OSC, Namburi and VRK Forex admitted to trading without registration and gave the OSC a formal undertaking that they would seek registration before trading securities on behalf of investors in the future.

According to the court, Stephen argued that their arrangement gave Namburi discretion to trade on his behalf.

He claimed that the agreement “was an attempt by Mr. Namburi to skirt the undertaking he gave to the OSC.”

Stephen claimed he was misled and wouldn’t have entered the arrangement had he known about the OSC case. His lawyer argued there was no need for a trial and that “Namburi was negligent, that he made deliberate misrepresentations and that the contract was illegal.”

However, Namburi denied that he had unfettered discretion to trade in the accounts, the ruling said. He also denied that he misled Stephen, and argued that he’s not responsible for the trading losses.

Namburi’s lawyer also argued that a trial is required to assess Stephen’s investment sophistication and to determine if he was misled.

Ultimately, the court ruled that a trial is needed to decide the case.

A key issue was the fact that Namburi disclosed that he was not registered with the OSC in the agreement that Stephen signed, the ruling said.

“If that information was not disclosed in the agreement, this would have been a very different application,” it said.

“The court must make a credibility assessment regarding Mr. Stephen’s level of investment knowledge and whether he truly did not understand what the registration requirements meant to determine whether Mr. Stephen was misled by Mr. Namburi.”

If Stephen understood what it meant to be registered, and entered an agreement knowing that Namburi was not a registered advisor, “Stephen would therefore assume the risk of having a person who is not an investment advisor trade on his behalf,” the court said.

“The issues to be determined on this application go beyond simply interpreting the terms in the contract. They raise material credibility issues regarding Mr. Stephen’s investment knowledge and the true nature of the relationship between Mr. Stephen and Mr. Namburi,” it said.