The SEC is showing its muscle in Silicon Valley with a crackdown on bad behavior, starting with unicorn startup Zenefits and its former CEO Parker Conrad.
First illustrated on BuzzFeed, the human resources startup has decided to pay almost $1 million in fines to solve the accusations made by the SEC that the company made, “significantly false and misleading statements and exclusion” to investors over agreement with state insurance laws.
The company’s seen a rotating door of leadership since Conrad was shown the door of the CEO position last year and former COO David Sacks took over to fill the void. Sacks has since pulled back, allowing Jay Fulcher to step in as Zenefits new CEO.
Lately, the company got itself into hot water under Conrad’s control for insufficient procedures. Members of the company’s sales team weren't also properly licensed as health insurance brokers.
“Though Zenefits recognized that it operated in a regulated industry, it didn't take sufficient steps to ensure its growing workforce was properly licensed to sell insurance,” reads a press release from the SEC detailing the matter. “Unbeknownst to investors, the company permit employees to use a computer script created by Conrad to allow them to spend less time on pre-licensing education than required by California law. Zenefits also permit employees to sell insurance before they had taken and passed their licensing exams, and allowed some employees licensed in one state to sell insurance in other states where they were not licensed.”
Zenefits sells a myriad of HR cloud services to small and mid-size businesses. Whereas, 90 percent of its revenue comes from the insurance side.
The mess caused a two-year legal cleanup and forced Conrad, who agreed to pay his part of the fine but didn't have to acknowledge findings that he or the company violated the federal securities laws over the matter, to resign.
Zenefits as agreed to pay $450,000 as it penalty, and Conrad also agreed to pay $350,000 in disgorgement plus $23,692.39 in interest and a $160,000 penalty for a total of $533,692, according to the SEC.
“This settlement closes the chapter on a journey we began 18 months ago to transform Zenefits through new values and leadership. We are pleased that the SEC clearly acknowledged our cooperation, our extraordinary remedial efforts, and our commitment to compliance,”said Josh Stein,
General Counsel at Zenefits. “We look forward to continuing the important work of helping companies thrive by taking better care of their employees.”