Zenefits Fined $7 Million by California Insurance Regulator

  • HR software startup will pay half upfront and face 2018 audit
  • Fine is the single largest penalty levied against company

California’s insurance regulator said Zenefits has agreed to pay as much as $7 million over licensing violations. The human resources startup will pay $3.5 million upfront and will be on the hook for the rest if additional violations are found or if it fails a follow-up compliance test in 2018, the insurance department said.

The fine is the largest single penalty assessed against Zenefits, the regulator said. Fines from other states this year totaled about $1 million, Zenefits said. The company said it’s resolved issues in 17 states.

Zenefits has faced a spate of controversies in the last year after some employees used software to skirt training requirements and sold health insurance without the necessary licenses. The company has slashed head count and agreed to reduce its valuation to $2 billion in exchange for shareholders agreeing not to sue the company. Zenefits has raised more than $580 million from backers including Andreessen Horowitz, Fidelity Investments and TPG Capital.

“We are pleased to reach a settlement with the California Department of Insurance, which recognized our remediation efforts by suspending half the fine,” Jessica Hoffman, a spokeswoman for Zenefits, wrote in an e-mail. “We now have a clean bill of health from our lead regulator as well as 16 other states. New management has righted the ship at Zenefits.”

About a quarter of the more than 8,000 insurance policies Zenefits sold to Californians from January 2014 to November 2015 were done without the proper licenses, the regulator said. The fine was reported earlier by BuzzFeed.

“Our enforcement action has resulted in Zenefits paying substantial monetary penalties for their licensing violations and ensures Zenefits complies with all of California’s insurance laws and regulations or they will face additional automatic penalties and sanctions,” Dave Jones, California’s insurance commissioner, said in a statement.

About half of the California fine involves the use of unlicensed brokers and the other half is for not following training procedures. Zenefits has said founding Chief Executive Officer Parker Conrad developed a program called “the macro” that allowed some employees to appear to be engaged in training software even when they were away from their desks. The agreement doesn’t preclude the regulator from taking action against Conrad directly. Zenefits agreed to cooperate with any potential investigation into its former CEO as part of the settlement.

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