SEC fines Zenefits, ousted CEO nearly $1 million over insurance scandal

In a rare move, the Securities and Exchange Commission on Thursday fined beleagured human resources software startup Zenefits, and its ousted CEO, a combined $980,000 for misleading the company’s investors.

The San Francisco-based “unicorn” startup, and its former CEO Parker Conrad, agreed to the penalties — without admitting guilt — to settle charges that Zenefits misled investors by falsely claiming its employees were properly licensed to sell insurance. Zenefits will pay $450,000, and Conrad will pay $350,000 in disgorgement, plus $23,692.39 in interest and a $160,000 penalty, for a total of $533,692, the SEC said.

It’s the first time the SEC has taken action against a private “unicorn” startup for misleading its investors, according to BuzzFeed, which first reported the settlement.

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The punishment stems from an internal investigation that found Conrad allowed Zenefits’ health insurance brokers to fudge some requirements for completing the 52-hour online training course required to become a licensed insurance agent in California. Conrad was forced to resign last year, and the company went on to lay off hundreds of workers and pay millions in fines to regulators (including $7 million in California alone).

Zenefits has been trying to put that scandal behind it, rebranding itself and quitting the insurance business, but the SEC fine proves that chapter of the startup’s life hasn’t quite closed.

“Although Zenefits recognized that it operated in a highly regulated industry, it did not take sufficient steps to ensure its growing workforce was properly licensed to sell insurance,” the SEC wrote. “Unbeknownst to investors, the company allowed employees to use a computer script created by Conrad to enable them to spend less time on pre-licensing education than required by California law.”

Zenefits also let employees sell insurance before they had passed their licensing exams, and let some employees who were licensed in one state sell insurance in other states where they were not licensed, according to the SEC.

Zenefits expressed approval of the settlement Friday.

“This settlement closes the chapter on a journey we began 18 months ago to transform Zenefits through new values and leadership,” Josh Stein, the company’s general counsel, wrote in an emailed statement. “We are pleased that the SEC clearly acknowledged our cooperation, our extraordinary remedial efforts, and our commitment to compliance. We look forward to continuing the important work of helping companies thrive by taking better care of their employees.”

Parker, who now runs another startup that helps companies onboard new employees, also said he’s glad to have the SEC case closed.

“I’m pleased to have reached an agreement with the SEC regarding Zenefits, and I’m incredibly proud of what we built there and grateful to have worked with such a talented group of people,” he wrote in an emailed statement. “Looking ahead, I could not be more excited about my new company, Rippling. With Rippling, it only takes one click to hire someone, get agreements signed, set up payroll, create accounts in 100+ business apps, set up IT and configure computers.”

Photo: Former Zenefits CEO Parker Conrad speaks at his office in San Francisco on Oct. 22, 2014. (Karl Mondon/Bay Area News Group)

 

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