Recovery from a failed
DST: a case study
Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers,
has helped investors recover losses from unsuitable DST recommendations,
broker due diligence failures, and sponsor misconduct. We are former
Wall Street defense attorneys who now use that insider knowledge to help
investors pursue recovery through FINRA arbitration and litigation.
The following case study is anonymized and illustrative. It is based
on the types of cases we handle. It does not describe a specific client
or guarantee any particular outcome.
Background: a typical
DST loss scenario
A 68-year-old investor — we will call her Margaret — sold a rental
property in 2021 and needed to complete a 1031 exchange within the
statutory deadline. Her broker-dealer recommended a DST sponsored by a
regional sponsor that marketed healthcare and senior living properties.
The broker told Margaret that the DST offered a projected annual
distribution of 5.5% and that her capital gains tax would be fully
deferred.
Margaret invested $500,000 into the DST. Within 18 months,
distributions stopped. The sponsor cited increased operating costs and a
tenant default. Margaret later learned that the sponsor had a history of
distribution problems in prior programs — information that was available
in the PPM but that her broker never discussed with her.
What went wrong
When we reviewed Margaret’s documents, we identified several
issues:
| Issue | What the broker did or failed to do | What should have happened |
|---|---|---|
| Suitability | Recommended a long-hold, illiquid DST to a 68-year-old investor who needed income |
The broker should have evaluated whether the DST fit Margaret’s liquidity needs and time horizon |
| Distribution projections | Relied on the sponsor’s 5.5% projected rate without stress-testing |
The broker should have analyzed whether projections were realistic given the property’s performance |
| Sponsor due diligence | Did not investigate the sponsor’s track record with prior programs |
The broker should have reviewed the sponsor’s history and prior distribution performance |
| Risk disclosure | Did not explain that distributions could be suspended at any time |
The broker should have disclosed the distribution suspension risk from the PPM |
| Fee disclosure | Did not explain the full fee structure or its impact on returns | The broker should have disclosed all fees and calculated their effect on projected returns |
The legal claims
Based on our review, we identified four primary claims:
-
Unsuitable recommendation under FINRA Rule 2111.
The DST did not fit Margaret’s investment profile. She needed regular
income and could not afford a long-hold, illiquid investment with
distribution risk. -
Misrepresentation. The broker represented that
distributions were stable and reliable, which overstated the
investment’s income characteristics and understated the risk of
distribution suspension. -
Omission of material facts. The broker failed to
disclose that distributions could be suspended, that the sponsor had
prior distribution problems, and that the fee structure would reduce
Margaret’s effective return. -
Failure to supervise. The broker-dealer did not
adequately supervise the registered representative’s recommendation,
including failing to conduct its own due diligence on the sponsor and
the DST.
The FINRA arbitration
process
We filed a Statement of Claim with FINRA on Margaret’s behalf. The
case proceeded through the following stages:
| Phase | Duration | What happened |
|---|---|---|
| Case evaluation | 3 weeks | Reviewed documents, identified claims, calculated damages |
| Filing | 1 month | Filed Statement of Claim; respondent filed Answer |
| Arbitrator selection | 6 weeks | Parties selected a three-arbitrator panel |
| Discovery | 4 months | Exchanged documents; deposed the broker and firm’s compliance officer |
| Hearing | 2 days | Presented evidence, expert testimony, and closing arguments |
| Award | 30 days | Panel issued a written award in Margaret’s favor |
The result
The FINRA arbitration panel found in Margaret’s favor on the
unsuitability and omission claims. The panel awarded compensatory
damages and attorneys’ fees. The specific amount and terms of the award
are confidential.
This case illustrates the types of claims and recovery paths
available to DST investors, but every case is different. Past results do
not guarantee future outcomes.
Lessons for DST investors
Margaret’s experience highlights several lessons for investors who
are considering or have invested in DSTs:
-
Read the PPM. The risk factors, distribution
policy, and fee structure are all in the PPM. If your broker does not
discuss them, ask questions. -
Evaluate suitability. A DST that locks up your
capital for 5–10 years may not be suitable if you need income or
liquidity. -
Investigate the sponsor. Prior program
performance, litigation history, and financial condition are all
relevant. -
Understand distribution risk. Distributions are
not guaranteed. The PPM will say so. Make sure you understand and accept
that risk. -
Act promptly. Statutes of limitations apply. The
sooner you consult an attorney, the more options you may have.
Checklist for
DST investors who have lost money
| Step | Action | Why it matters |
|---|---|---|
| 1 | Gather your PPM, subscription agreement, K-1s, and statements | These documents form the basis of your claim |
| 2 | Review the PPM’s risk factors and distribution policy | Identify what was disclosed versus what the broker told you |
| 3 | Document what the broker told you | Write down what was said about distributions, risk, and suitability |
| 4 | Evaluate your investment profile | Determine whether the DST fit your needs, time horizon, and risk tolerance |
| 5 | Consult a securities attorney | An attorney can evaluate your claims and advise you on the best path forward |
Contact Investment Fraud
Lawyers
Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers,
has recovered losses for investors across the country. We work on a
contingency fee basis: no recovery, no fee. We review each case at no
cost and determine whether the broker, sponsor, or both may be
liable.
If you have lost money in a DST, call us at
1-888-885-7162 or use our confidential contact form. We
will review your brokerage statements, offering documents, and
communications to identify whether your losses were avoidable.
Legal disclaimer: Past results do not guarantee
future outcomes. Every case is unique, and recovery depends on the
specific facts, applicable law, and available defendants. The case study
above is illustrative and anonymized; it does not describe a specific
client or guarantee any particular outcome.
Return to our main resource on DST investor losses.