San Francisco-based startup Zenefits will pay $450,000 to settle federal claims that company leaders falsely told investors that employees were licensed to sell insurance.

Former Zenefits chief executive officer Parker Conrad also agreed to disgorge  $350,000 and to pay a $160,000 penalty plus $23,692 in interest under terms of an agreement with the U.S. Securities and Exchange Commission.

The settlement stems from allegations that Conrad failed to disclose that he had written a computer script that allowed employees of his personnel-services company to skim through pre-licensing insurance coursework in less time than mandated by California law.

Conrad and the company also let certain employees sell insurance before they obtained necessary licenses, according to the SEC.Insurance sales accounted for almost all of Zenefits’ revenue at the time of its two securities offerings, which generated more than $565 million, the SEC said.

Zenefits general counsel Joshua Stein. Credit: Jason Doiy/ ALM

“This settlement closes the chapter on a journey we began 18 months ago to transform Zenefits through new values and leadership,” Joshua Stein, Zenefits general counsel, said in a prepared statement.

Last November, Zenefits agreed to pay up to $7 million to settle similar claims with California insurance regulators. The company has now resolved at at least 40 state investigations and agreed to pay up to $11,000,000 in sanctions, according to the SEC.

Zenefits recently announced it was getting out of insurance sales and leaving the brokerage business to partners.

Conrad resigned from Zenefits in February 2016. In March he launched a new human resources startup, Rippling, which is expected to compete with the human resources services offered by Zenefits.

Zenefits emerged in 2013 as a potential rival to payroll giant ADP LLC, offering free personnel management software to businesses that were too small to have their own human resources director or department. The company was once valued at $4.5 billion but endured a barrage of bad publicity during the years of insurance-sales investigations.

Stein joined Zenefits as general counsel in 2015 but quickly moved to the newly created position of chief compliance officer to help deal with the company’s licensing issues. He became general counsel again in November 2016.

In a July interview with The Recorder, Stein noted that despite all the investigations Zenefits never stopped operating in any state.

“We reconstituted our board of directors, we changed our executive leadership, we were transparent and open with our regulators, we engaged a third-party national consulting firm to give an exhaustive report on prior compliance issues,” Stein said. “We fixed all those issues.”

Neither Zenefits nor Conrad admitted to any wrongdoing in agreeing to the settlement with the SEC.


The Zenefits settlement order is posted below:


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