3D Systems to Pay Up to $27M to Settle Allegations of Illegal Exports to China

3D Systems (NYSE: DDD), one of the additive manufacturing (AM) sector’s true pioneers, settled a court case with the US federal government on February 27, 2023, based on allegations that the South Carolina company violated the Department of Commerce’s Export Control Laws and the Department of Justice’s False Claims Act. For the actions that were alleged by the government to have taken place between January 1, 2012, and December 31, 2017, 3D Systems reached three separate settlement agreements: one with the Department of Commerce (DOC), another with the Department of Justice (DOJ), and the third with the Department of State (DOS).

3D Systems will have to pay initial restitution of $2.27 million within 30 days, with another $2.27 million to be tacked on by DOJ if the company fails to do so. In all, the company owes $2.77 million to DOC, up to $4.54 million to DOJ, and up to $20 million to DOS. The last sum will be reduced by half, if 3D Systems is able to show that it has made changes to comply with the regulations.

The alleged violations include the emailing of “design documents, blueprints and technical specification” to Quickparts.com, which at the time was a 3D Systems subsidiary. Those emails contained designs for aerospace technology that require export licenses in the US, technology including parts for military electronics and spacecraft. For the majority of the timeframe of the lawsuit, the company was overseen by then-CEO Avi Reichental, who now runs 3D printing startup NEXA 3D. Current CEO Jeff Graves dispensed with Quickparts (since rebranded 3D Systems on Demand) in 2021, who sold the 3D printing bureau to private equity firm Trilantic North America and investors that included Reichental.

A day after news of the settlement, 3D Systems also announced that the company will be undertaking a restructuring initiative, in an attempt to reduce costs by $2.5-3.5 million in 2023, with an eventual goal of an annualized $5.5-7 million in savings in 2024 and beyond. The details of 3D Systems’ restructuring plan include “optimizing its European metal printer operations and streamlining its software organization”.

I would guess that the company was planning on the restructuring initiative independently of the settlement, but that the timing of the announcement was perhaps strategic, to offset the bad news of the settlement ahead of the company’s release of its earnings report. The precise amount of the cost-reduction targets could’ve also been affected by the settlement, since, if it meets its goals, 3D Systems will have offset the costs of the settlement and then some by 2025.

In any case, what will probably turn out to amount to around $14 million isn’t the end of the world, although it doesn’t help in a belt-tightening financial atmosphere. The real problem for 3D Systems here obviously has to do with image: allegations of trade violations related to sending military tech to China is about as big of a PR nightmare right now that one could conjur up.

Whether it’s fair or not, since it’s presumably something that virtually every US tech company has done, 3D Systems is the company that is making headlines for having allegedly done it, and it’s not a good look. Specifically, considering the reasons why anti-China fervor is most often ginned up by US politicians these days, it’s easy to see this making things difficult for the company’s otherwise promising acceleration of its bioprinting division. On the other hand, assuming 3D Systems makes the changes it needs to make to be compliant, it is going to have the benefit of having had its credentials verified by the government, so in the long run the settlement could have a silver lining.