Class Action Suit Filed Against MakerBot (and Stratasys)

By on July 16th, 2015 in Corporate

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Documentation filed in the US District Court in Minnesota alleges violations by Stratasys regarding their MakerBot subsidiary. 

The action is directed at Stratasys and certain of its officers, who are alleged to have:

Engaged in a fraudulent scheme to artificially inflate the Company’s stock price by both misrepresenting and concealing the true operational and financial conditions of the Company and its indirect, wholly owned subsidiary, MakerBot Industries, LLC (“MakerBot”). 

The action is presented on behalf of anyone who purchased Stratasys stock during a period including most of 2014 and the first quarter of 2015. 

The action is the result of buyers unhappy with the performance of the Smart Extruder feature on recent MakerBot 3D printer models, including the current Replicator, Replicator Mini and Z-18. 

Interestingly, the effective period of stock purchase described in the document starts on January 6, 2014, the day MakerBot announced the new Smart Extruder and associated machines. 

Basically, the suit claims that Stratasys’ stock price rose as a result of the MakerBot acquisition, but should not have given the subsequent performance of the company, which they feel was affected by the buggy Smart Extruder. They say in court documents: 

Defendants rushed MakerBot’s 5th generation printers to the market despite their knowledge of serious quality and reliability issues plaguing the printers. Most significantly, the Smart Extruder promoted by Defendants was severely defective, frequently clogging with filament and rendering the 5th generation printers inoperable, among other problems. 

And subsequently sales were dampened resulting in stock price effects. 

We’ve long heard anecdotal stories of MakerBot Smart Extruder issues, and in fact, the company even sells them in three-packs now and has positioned it as consumable item. However, we’ve also heard that significant improvements have been made to the Smart Extruder since 2014 from several sources. Yet the initial issues may persist in the minds of consumers, even if the original problem was rectified. 

The suit demands compensatory damages paid by Stratasys to those participating in the action. It’s not clear what this could total to, but it may be a large number. 

Named in the suit are the following defendants, the company and leaders during the affected periods: 

  • Stratasys Ltd.
  • David Reis
  • Erez Simha
  • Bre Pettis
  • Jennifer Lawton

The plaintiffs in this case are the Mineworkers’ Pension Scheme and Macomb County Employees’ Retirement System, both of which likely purchased large quantities of Stratasys stock during the affected period. 

It will be quite interesting to watch this unfold. From our quick read, it seems that those presenting the suit have some clear arguments and evidence (including numerous charts and photographic images) in their massive, 125 page court document. However, Stratasys has yet to respond – and we’ll cover their side when it is presented. 

As of today, there seems to be no effect on Stratasys’ stock price, which remains in the mid $30’s. You must remember that Stratasys is a very large company, of which MakerBot is only a small segment. MakerBot may account for the majority of the count of 3D printers made by Stratasys, but it is certainly not generating the majority of its revenue, which comes from industrial 3D printers, software and supplies. 

Via MakeZine and (Court Document PDF)

By Kerry Stevenson

Kerry Stevenson, aka "General Fabb" has written over 8,000 stories on 3D printing at Fabbaloo since he launched the venture in 2007, with an intention to promote and grow the incredible technology of 3D printing across the world. So far, it seems to be working!