In World Trade Financial Corp. v. SEC (http://www.metnews.com/sos.cgi?0114//12-70681) the Ninth Circuit upheld the SEC's position that a broker-dealer seeking to sell unregistered securities under the "brokers' exemption" must conduct a reasonable inquiry. In the WTFC case, the shares at issue contained no restricted legend. The broker-dealer made no inquiry beyond checking for a restricted legend, despite what the SEC and the Ninth Circuit considered "red flags": the corporation had just gone through a reverse merger, had little operating history, and was thinly traded on the "pink sheets." As it turned out, the selling shareholders had obtained an incorrect legal opinion that the shares were not restricted. The Ninth Circuit had never before addressed whether brokers had an obligation under the circumstances to conduct an inquiry. The Ninth Circuit joined the DC Circuit holding that a reasonable inquiry was required and that the broker-dealer here had egregiously failed to meet that standard by in effect making no inquiry at all.