DST Delaware Statutory Trust Investment Fraud Lawyers

What is a Delaware Statutory Trust and why do investors lose money in them?

A Delaware Statutory Trust is a legal entity created under Delaware law that holds fractional ownership interests in one or more real estate properties. DSTs are sold to investors primarily as vehicles for completing Section 1031 like-kind exchanges — transactions that allow real estate investors to defer capital gains taxes when selling appreciated property by reinvesting proceeds into a qualifying replacement property. The appeal of the DST is that it allows investors to satisfy the 1031 exchange timeline and diversification requirements without having to identify and purchase a replacement property themselves.

The investment fraud problem with Delaware Statutory Trusts arises from how they are sold, not from the legal structure itself. DSTs are illiquid, non-traded securities — there is no secondary market, and investors who need access to their capital before the trust is liquidated or the underlying property is sold face substantial or total loss of liquidity. The typical DST holding period is five to ten years. Yet brokers routinely recommend DSTs to investors — including elderly investors, investors with near-term income needs, and investors with limited net worth — without adequately disclosing these illiquidity constraints. When an investor’s circumstances change and they need access to capital, the DST provides no exit.

DSTs also carry significant fee loads that are rarely adequately disclosed at the point of sale. Upfront sales commissions, dealer manager fees, organizational and offering expenses, acquisition fees, and ongoing asset management fees collectively erode returns before any distribution is made to investors. Offering documents bury these fees in technical disclosure language while brokers present projected yield figures that do not account for the full fee impact. The combination of illiquidity, high fees, and misrepresented risk profiles makes DST recommendations one of the most frequently litigated unsuitable investment categories in FINRA arbitration.

DST investment fraud and misconduct patterns

• 1031 exchange misrepresentation: brokers who position DSTs as straightforward 1031 exchange solutions without disclosing the illiquidity, fee load, and concentration risk frequently misrepresent the suitability of the product for investors whose real estate proceeds represent their primary retirement assets.
• Unsuitable recommendations to elderly investors: DST interests with five-to-ten year holding periods are frequently unsuitable for elderly investors with shorter investment horizons, limited income needs, or potential healthcare expenses. Recommending an illiquid ten-year investment to a 75-year-old investor is a textbook suitability violation.
• Undisclosed fee loads: total fees in DST offerings frequently reach 10-15% of invested capital. When brokers present projected yields without disclosing the impact of upfront and ongoing fees, they commit material omissions actionable under federal and state securities law.
• Overconcentration: brokers who place a significant portion of an investor’s liquid net worth into a single DST or into DST interests broadly violate FINRA’s overconcentration rules regardless of whether the individual recommendation is otherwise suitable.
• Misrepresented 1031 exchange qualification: investors who are told their DST investment qualifies for 1031 exchange treatment but whose specific circumstances — the nature of the relinquished property, the timeline, or the investor’s entity structure — make 1031 qualification impossible or uncertain face specific harm when the expected tax deferral fails.
• Failure to supervise: brokerage firms whose supervisory systems fail to detect patterns of unsuitable DST recommendations bear independent FINRA Rule 3110 liability.

FINRA arbitration claims for DST investment losses

DST investment fraud claims proceed through FINRA arbitration when the recommending broker is a FINRA-registered representative and the investment was made through a FINRA member firm. Claims typically allege violations of FINRA Rule 2111 (suitability), Regulation Best Interest (for recommendations made after June 30, 2020), Section 10(b) of the Securities Exchange Act of 1934, and applicable state securities laws. California investors have additional remedies under the California Corporations Code, which provides rescission rights for unsuitably recommended securities.

The evidentiary record in DST cases is generally favorable to investor claimants. The offering memorandum documents the fee structure, the illiquidity, and the risk factors — establishing the objective characteristics of the product. The broker’s new account form documents the investor’s stated risk tolerance, investment horizon, and liquidity needs. When an investor’s documented financial profile is inconsistent with the product’s documented characteristics, the suitability violation appears in the firm’s own records. Bakhtiari & Harrison pursues the full documentary record through FINRA discovery, including internal suitability review approvals and branch manager supervision files.

Why choose Bakhtiari & Harrison as your DST investment loss lawyers

• $250 million+ recovered. Four decades of results for investors in FINRA arbitration and securities litigation nationwide.
• Former FINRA NAMC Chairman. Ryan Bakhtiari served as Chairman of the FINRA National Arbitration and Mediation Committee from 2013 to 2017.
• Former Morgan Stanley in-house counsel. David Harrison spent years as Morgan Stanley Dean Witter in-house counsel and began his career as a Series 7-licensed representative at Shearson Lehman Brothers.
• Dedicated experience in FINRA arbitration. Selecting counsel with specific FINRA arbitration expertise is the single most important decision an investor claimant makes. Bakhtiari & Harrison’s practice is dedicated to investor-side FINRA arbitration and securities litigation.
• FINRA hearings near you. FINRA arbitration hearings are held at the venue nearest the claimant’s residence.
• Contingency fee representation. No recovery, no fee. Initial consultations are free.

Frequently asked questions — DST investment losses

How do I know if my DST recommendation was unsuitable?

The key questions are whether your broker adequately disclosed the illiquidity, the fee load, and the holding period — and whether the DST was consistent with your investment objectives, risk tolerance, and liquidity needs. If your broker described a DST primarily as a convenient 1031 exchange solution without explaining that you could be locked in for a decade with no exit, you may have a viable FINRA arbitration claim. Bakhtiari & Harrison evaluates every potential DST claim in a free initial consultation.

Can I bring a FINRA arbitration claim against the sponsor of the DST?

FINRA arbitration claims are brought against FINRA member broker-dealers and their registered representatives — not typically against the DST sponsor, who is usually not a FINRA member. Claims against the sponsor for securities fraud or breach of fiduciary duty may be brought in court under state or federal securities law. Bakhtiari & Harrison evaluates both the broker-dealer and the sponsor for potential liability in every DST case.

What is the deadline to file a DST investment fraud claim?

FINRA Rule 12206 requires claims to be filed within six years of the events giving rise to the dispute. For DST claims, the clock typically starts at the time of the unsuitable recommendation — not when the loss is realized at liquidation. Do not wait for the trust to be liquidated before contacting an attorney. Contact Bakhtiari & Harrison promptly for a free evaluation.

What damages can I recover in a DST FINRA arbitration claim?

Prevailing investors recover compensatory damages — typically measured as the difference between what a suitable investment would have returned and what you actually received — plus consequential damages and prejudgment interest. In cases involving deliberate misrepresentation of DST characteristics, FINRA panels can award punitive damages. California investors have additional rescission remedies under the California Corporations Code.

Contact our DST investment loss lawyers — free consultation

Retaining an advisor misconduct attorney and law firm is an important decision made with great care. Please review our website, experience, and credentials. The choice of an advisor misconduct attorney may be the single most important decision a litigant makes either before or after a dispute arises. Read more about The Importance of Selection of Counsel. Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential claim at no charge. Contact us today.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

Call: (800) 382-7969 | Contact Us