The story is complete and utter nonsense.
Either a manufacturer was authorized to produce certain badges/decorations, or he wasn't.
A person who had been awarded a certain badge/decoration was entitled to wear it; anybody else wasn't and would have committed a criminal offense by wearing it.
The idea that the authorities would have approved of the manufacture and the general, unrestricted wear of an official badge or decoration just because a few minor design details had been changed is absurd.
In fact, the law was quite specific about the fact that this, too, was a criminal offense. § 6 of the National Law on Titles, Orders and Decorations [Gesetz über Titel, Orden und Ehrenzeichen] said:
"Mit Gefängnis bis zu einem Jahr und mit Geldstrafe oder mit einer dieser Strafen wird bestraft [...] wer unbefugt inländische oder ausländische Orden oder Ehrenzeichen trägt oder wer Abzeichen, die nach ihrer äußeren Form oder Tragweise den im § 5 genannten Orden und Ehrenzeichen ähneln, trägt, herstellt, anbietet, feilhält, verkauft oder sonst in den Verkehr bringt."
"Punished by a term in prison of up to one year and with a punitive fine or with one of these punishments are [...] those who, without authorization, wear domestic or foreign orders or decorations or who wear, manufacture, offer, keep for sale, sell or otherwise bring into circulation badges that by their outward appearance or method of wear resemble the orders and decorations listed in § 5."
That story about deliberate, "radical" and "subtle", "officially sanctioned" design changes is obviously made up to explain away the lousy qualitiy of the stickpin.