I've heard of this happening. Seems like this has been reported in the literature too as a rare complication. Bernstein EF. Hair growth induced by diode laser treatment. Derm Surg. 2005 May; 31(5) 584-6.
yes, i am aware of few such case reports and practically more related with diode laser hair removal...as jyothi above has said.. seems to be the mechanism of such hair growth... treating very fine hair or vellus hair with diode will result in such complication
it is important not to use very low fluence initially, other wise u will get synchronization of hair cycles and then u see paradoxical hair growth.