Photographer: Patrick T. Fallon/Bloomberg

Zenefits Settles With Tennessee Over Unlicensed Health Insurance Sales

The San Francisco startup’s business practices have been under investigation in at least three other states.

Zenefits reached its first settlement with a state government over its use of unlicensed health insurance brokers, an issue that prompted investigations in at least three other states and led its founding chief executive officer to resign this year.

As part of the settlement, Zenefits said it will pay the Tennessee Department of Commerce and Insurance $62,500 in fines. The company will continue to sell insurance in the state.

Zenefits CEO David Sacks, who replaced co-founder Parker Conrad when he stepped down in February, described the settlement as "tough but fair" and "a watershed moment" that will help the company end its disputes in other states soon. "The state explained that more severe fines or penalties were not warranted because Zenefits self-reported its violations and took extensive remediation measures," Sacks wrote in a company blog post.

Before the controversies, Zenefits was one of the fastest-growing venture-backed startups. In a funding round last year, investors valued the San Francisco company, which creates HR software and sells employee benefits to businesses, at $4.5 billion. Then the company came under pressure from state regulators, who said Zenefits employees were selling insurance without the appropriate licenses.

Zenefits said staff were using software allowing them to skirt training requirements. It cut some 350 jobs this year. Last month, Zenefits agreed to slice its valuation to $2 billion in exchange for investors waiving their rights to sue the company.

Insurance agencies in California, Massachusetts, and Washington have opened investigations into Zenefits' operations. The company said it reported company violations to regulators in every U.S. state on March 1.

Since Sacks was promoted from chief operating officer, he has been touting how Zenefits has changed under new leadership. Sacks wrote in the blog post: "As a result of the measures we’ve taken over the past six months, Zenefits has become a much stronger and more mature company."

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