For the first time, Silicon Valley is holding CEOs accountable. HR management company Zenefits and their former CEO Parker Conrad have settled for almost $1 million for fraud accusations made by the SEC.
The highly profiled case that has been overshadowing Zenefits for the past two years can finally be put to rest. Last year Conrad stepped down as CEO after the SEC found the company had inadequate compliance procedures.
According to their press release, the SEC found that Zenefits “did not take sufficient steps to ensure its growing workforce was properly licensed to sell insurance.” Most members of the sales team did not have proper licensing as health insurance brokers.
Specifically, employees would be allowed to sell insurance before passing their exams and in states where they were not licensed.
The SEC believes that Conrad intentionally misled investors by holding back information. If you visit the Zenefits website, they boast about their unique HR management services.
They market themselves as selling HR cloud services to small businesses, which is true, though most of their revenue comes from insurance sales. When we say “most” we mean 90% of their revenue.
Even with the 18 month investigation, the settlement was made without any admittance from Conrad. In the settlement, Zenefits agreed to pay $450,000 in fines. For his individual role, Conrad settled to pay $350,000 in disgorgement, $23,692.39 in interest and a $160,000 penalty.
Zenefits have since booted Conrad and is now led by new CEO Jay Fulcher. They have fully complied with the SEC and hope to move on with “new values and leadership,” according to Josh Stein, General Counsel at Zenefits.
Stein also mentioned that Zenefits will get back on track through “helping companies thrive by taking better care of their employees.”
This is one of the first major cases against a unicorn startup – which does not refer to the mythical creature but instead is a startup that is valued over $1 billion. With all of the money in Silicon Valley, it most likely won’t be the last.
The SEC plans to enforce their regulation policies in order to keep investors, companies, and the customers they serve on the same page.