Which bond protects the consumer against misrepresentation of a securities dealer?

• A. Blue Sky bond
• B. Permit bond
• C. Payment bond
• D. Lost Instrument bond

Answer: (A)

A Blue Sky bond is the bond that protects consumers against misrepresentation by a securities dealer. Under state securities laws, often called Blue Sky laws, securities professionals must post a bond to provide a financial remedy if investors are harmed by fraudulent or misleading practices. The Blue Sky bond gives investors a source of recovery up to the bond amount if a dealer misrepresents the securities they sell or otherwise violates regulatory requirements.

Other bonds serve different purposes: a permit bond is tied to obtaining or maintaining a license, not to investor protection; a payment bond guarantees payment to subcontractors in construction projects; and a lost instrument bond protects against loss or theft of security instruments. So the bond that specifically guards the public from misrepresentation by a securities dealer is the Blue Sky bond.