(Bloomberg) — The U.S. Securities and Exchange Commission settled with Zenefits and its former chief executive officer over charges the company misled investors by failing to disclose employees were selling insurance without a license.
Zenefits, a venture-backed broker of health insurance to businesses, will pay $450,000, and Parker Conrad, the co-founder and ex-CEO, will pay about $534,000. The SEC said Zenefits, under Conrad’s leadership, sold insurance in states without the appropriate licenses and that Conrad had created a software tool to help skirt the time requirements for legally mandated pre-licensing training in California. Neither the company nor Conrad admitted wrongdoing in the settlement.
The fines pale in comparison to the $11 million in penalties that Zenefits has agreed to pay in at least 40 states. Last year, Zenefits reset expectations with investors by renegotiating its valuation to $2 billion from $4.5 billion in exchange for avoiding potential lawsuits. The company has raised more than $550 million since it was founded four years ago.
“This settlement closes the chapter on a journey we began 18 months ago to transform Zenefits through new values and leadership,” Josh Stein, general counsel for Zenefits, said in a statement. “We are pleased that the SEC clearly acknowledged our cooperation, our extraordinary remedial efforts, and our commitment to compliance.”
The fine is a sign that the SEC, which mainly focuses on public companies, may be more willing to step in when startups commit bad behavior. Mary Jo White, former head of the SEC under President Barack Obama, indicated last year that the agency would look more closely at private companies.
The SEC was particularly critical of decision-making by Conrad, who has since moved on to starting another company. “Conrad was aware that in certain instances employees were speaking to customers after having passed their qualifying exams but before obtaining their licenses from the issuing authority,” the SEC said in a filing. “Conrad understood, or should have understood, that this was inconsistent with California and Arizona law, but allowed the practice to continue.”
In an emailed statement, Conrad said: “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.”