- The SEC announced on Thursday that it reached a settlement with Parker Conrad, founder of Zenefits, over allegations that the company lied to investors about if employees were properly licensed to sell insurance. Conrad is personally on the hook to pay over half a million in fines. The SEC also settled with Zenefits, which will pay a $450,000 penalty.
Zenefits cofounder and former CEO Parker Conrad has settled SEC charges that alleged he misled investors over employees being properly licensed to sell insurance.
Conrad will personally pay $533,692 including penalties, interest and “disgorgement.” Disgorgement refers to when a court orders someone to give up profits obtained by what it deems to be unethical, if not illegal, acts.
Under Conrad, Zenefits crafted a business model where it offered free HR software to businesses, making its money on selling insurance. In 2014 it was hailed as one of the fastest growing startups ever.
Based on those growth claims, at two years old, Zenefits raised $583 million from private investors who thought it worth a $4.5 billion valuation. Conrad had publicly said it was on track to hit $100 million in revenue under contract.
Behind the scenes, the company was spinning out of control and was accused of allowing people to sell insurance without being properly licensed. Conrad also admitted to writing a computer program that helped employees sidestep a legal requirement for how many hours they must study for their license.
The SEC found that Conrad and Zenefits were “negligent in failing to disclose to investors” about its licensing, including the macro. After an internal investigation, Conrad was forced to resign. He left with more than $10 million from selling some of this interest in the company, sources told Business Insider.
Conrad and Zenefits did not admit or deny that they violated federal securities laws.
He’s got a new project
It’s unclear if this settlement wraps up any other possible future litigation Conrad may face, particularly over the macro program. Zenefits the company has been systematically overhauling itself, ensuring everyone is properly licensed and settling investigations with regulators in multiple states. In September, it shifted its business model to selling its software and working with partners to sell insurance.
Meanwhile, Conrad has moved on and launched a new HR software startup and has new investors that were “thrilled” to back him.
“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. Looking ahead, I could not be more excited about my new company,” Conrad said in an emailed statement to Business Insider.
“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. We look forward to continuing the important work of helping companies thrive by taking better care of their employees,” said Josh Stein, General Counsel at Zenefits.