After defeating the investor lawsuit, Desktop Metal was cleared of fraud and stock manipulation.


Hurry up! Deadline approaching! Nominate now for the prestigious 3D Printing Industry Awards 2023. In a recent legal battle, Massachusetts-based metal 3D printer manufacturer Desktop Metal successfully defended itself against a shareholder lawsuit. The lawsuit alleged that the company had lied about its Flexcera dental resin’s compliance with the U.S. Food and Drug Administration (FDA) regulations in order to inflate its stock prices.

The lead plaintiffs in the case, Sophia Zhou and Yichun Xie, argued that 25 statements made by Desktop Metal’s CEO Ric Fulop, former Desktop Health CEO and President Michael Jafer, and former EnvisionTEC CEO Ali El-Siblani were false and misleading. However, United States District Judge Indira Talwani ruled in favor of dismissing the motion, stating that none of the statements were sufficient to support a Rule 10b-5 claim. Rule 10b-5 is a securities fraud law that targets false statements made by executives to manipulate stock prices.

One of the key factors in the court’s decision was Desktop Metal’s swift and professional handling of the FDA infringements. The company had explicitly warned investors about the risks associated with FDA regulations, and as soon as an investigation into the infringements was initiated, investors were informed. This undermined the allegations of stock price inflation.

The origin of the case can be traced back to February 2021 when Desktop Metal acquired medical 3D printer manufacturer EnvisionTEC. This $300 million deal made EnvisionTEC a wholly-owned subsidiary of Desktop Metal and included the acquisition of EnvisionTEC’s medical 3D printing product portfolio. Following the acquisition, Desktop Metal established a Californian subsidiary called Desktop Health, which focused on patient-specific 3D printed healthcare solutions. One of the key products in this subsidiary was the Flexcera resin.

Flexcera resins were exclusively formulated for use in 3D printing dental prosthetics and were manufactured by EnvisionTEC. The resins were specifically designed for use with EnvisionTEC 3D printers. In May 2021, Desktop Metal announced that it had obtained FDA approval for its Flexcera resin. The FDA requirements stated that Flexcera must be manufactured in FDA-authorized facilities and must be labeled accordingly.

According to court documents, between March and April 2021, EnvisionTEC manufactured Flexcera resins at its Montreal facility, which was not registered with the FDA. The director of the Montreal facility was reportedly instructed by Ali El-Siblani to increase production of these resins, which were then shipped to the Dearborn facility to be bottled and labeled. The labels falsely indicated that the Flexcera products had been manufactured at the FDA-approved facility in Dearborn. Non-FDA compliant Flexcera resins were sold to customers between April and October 2021, accounting for approximately 10% of the total Flexcera sales during that period.

Furthermore, El-Siblani allegedly pressured EnvisionTEC’s dental sales team to sell the company’s PCA 4000 curing box for use with Flexcera products, even though the PCA 4000 was not used for curing Flexcera in its FDA application. Initially, the marketing material for Flexcera referenced NK-Optik’s curing unit as the only suitable option. However, after customers complained that PCA 4000-cured Flexcera was “gummy,” EnvisionTEC significantly increased the recommended curing time.

In 2021, an independent laboratory conducted validation testing on Flexcera resin following EnvisionTEC’s Instructions For Use (IFU), which included PCA 4000 curing. The resulting 3D printed dentures were found to be significantly weaker than advertised, with a flexural strength lower than the claimed 90 megapascals (MPa).

The court’s ruling in favor of Desktop Metal highlights the company’s commitment to transparency and prompt action in addressing FDA infringements. While this legal battle may have caused some concern among investors, the dismissal of the lawsuit provides reassurance that Desktop Metal takes its regulatory compliance seriously, which bodes well for the company’s future prospects. As always, investors should conduct thorough due diligence and consider all relevant factors before making investment decisions.

The recent legal case against Desktop Metal has come to a conclusion, with allegations made by plaintiffs ultimately being dismissed by Judge Talwani. The case revolved around allegations of false and misleading statements made by Desktop Metal regarding the FDA approval status of its Flexcera resin and the curing capabilities of its PCA 4000 curing boxes.

The plaintiffs argued that these statements were made to artificially inflate stock prices, but Judge Talwani found that they were not sufficient to support a Rule 10b-5 claim. In fact, the judge stated that the defendants’ disclosures regarding regulatory compliance were not misleading, as the company had explicitly warned investors about the potential costs and consequences of FDA regulation.

Furthermore, the ruling highlighted that Flexcera resin had indeed received FDA approval in 2021, and that the small number of resin products manufactured in non-FDA facilities did not negate this certification. The judge also noted that Desktop Metal took swift and professional action to address the manufacturing infringements without the need for FDA intervention, which contributed to the finding that it would have been more misleading to assert that the product was not FDA-compliant.

Regarding statements made prior to March 2021, the ruling determined that the plaintiffs failed to demonstrate that any risk of non-compliance had materialized, and therefore, there was no basis for finding these statements misleading. Moreover, the ruling concluded that the statements made about the PCA 4000 did not constitute material fraud or misrepresentation, as there was no explicit link established between the Flexcera resin and the PCA 4000.

This ruling is a significant victory for Desktop Metal, as it dismisses the allegations made against the company and affirms its commitment to regulatory compliance. The case also underscores the importance of accurate and transparent disclosures for companies operating in highly regulated industries. As Desktop Metal continues to grow and innovate within the additive manufacturing industry, it will be crucial for the company to maintain its commitment to regulatory compliance and clear communication with investors.

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Original source


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