Jul 26, 2017 | By David
3D printing giant Stratasys breathed a sigh of relief recently as it was fully cleared of some potentially damaging charges. After some deliberation, a court in Minnesota ruled that the company was not guilty of having committed fraud. The allegations came about after a series of misleading remarks were made about one of its 3D printing products, leading to a group of dissatisfied shareholders claiming they were fraudulent statements. The court judged in Stratasys’ favour, dismissing the case after deciding that mere hyperbole and exaggeration do not amount to securities fraud. This decision was subsequently upheld by the appeals court.
Stratasys Ltd, based in Eden Prairie, Minnesota, acquired desktop 3D printer manufacturer MakerBot Industries in August 2013, as we previously reported. The acquisition was a way for the company to get a foothold in the burgeoning desktop 3D printer market, and MakerBot became an indirect wholly owned subsidiary of Stratasys. Problems first arose when MakerBot introduced a new line of 3D printers in January 2014. Described as ‘5G’ printers, the new desktop machines had a replaceable print head which was designed to be swappable. Customers were disappointed with the performance of these MakerBot Replicator printers, however. The extruder was prone to significant clogging issues, and there were other technical glitches which made the printers practically ‘inoperable’.
The release of the Replicator proved costly to MakerBot and Stratasys, due to the amount of replacements, refunds and repairs that were necessary. Declining sales also led to a price drop in Stratasys’ stock price, and investors ended up filing action against the company for securities fraud, due to the quality of the new products affecting their finances negatively in a major way. Stratasys had ‘rushed (the 3D printers) to market while publicly proclaiming their quality and reliability”, according to the suit. The case hinged on whether the statements that were made about the 3D printers’ quality were deliberately false, and whether it was reasonable for investors to make financial decisions based on them.
As we previously reported, the U.S. District Court in Minneapolis dismissed the case. The 8th U.S Circuit Court of Appeals upheld this decision, as a three-judge appeals court panel unanimously affirmed the ruling. They decided that the claimants shouldn’t have made investments based on what was obvious hyperbole, and that no deliberate deception had taken place. Neither Stratasys nor MakerBot was in a position to know the full extent of the problems its product would face, and the statements made about the speed and reliability of the 3D printers were were appropriate in the context they were made.
“A statement is not material and is mere puffery, if it is ‘so vague and such obvious hyperbole that no reasonable investor would rely upon (it),’” said the ruling, in quoting an earlier ruling. “Stratasys’s statements that the 5G printers offer ‘unmatched speed, reliability, quality and connectivity’ are vague and unreliable.”
“As the District Court noted, even to the extent the claim of ‘unmatched speed’ could be actionable, the shareholders ‘do not allege any facts demonstrating that the 5G printers are not faster than MakerBot’s other printers, or other desktop 3-D printers on the market,” the ruling states.
“The material misstatement must be false when made, not just in hindsight,” according to the ruling. The “shareholders’ claims fail because their allegations do not adequately tie Stratasys’s knowledge of the product quality issues or their financial repercussions to the timing of the statements.”
Posted in 3D Printer Company
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