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California Insurance Department Is Investigating Zenefits

February 11, 2016, 10:47 PM UTC
Unicorn 2015 Parker Conrad Zenefits
NYT/SAN FRANCISCO, CA--8/11/2014---- Profile of , Zenefits, and the founder, Parker Conrad. It's about how this company that's only about a year and a half old has become the biggest insurance broker in California, and is aiming to do the same nationally. Conrad, in some images is shown with his dog Ajax. .. .. . . . <<<<>>>>: Parker Conrad of Zenefits. CREDIT PHOTO--JIM WILSON/THE NEW YORK TIMES 10162384A NYTCREDIT: Jim Wilson/The New York Times
Photograph by Jim Wilson — The New York Times/Redux

Zenefits’s battle with state regulators rages on.

The California Insurance Department said on Thursday that it’s been investigating the human resources software company since last year over its business practices.

The department said it chose to reveal the investigation because of the sudden departure of Zenefits co-founder and CEO Parker Conrad earlier this week. Conrad stepped down from Zenefits amid ongoing investigations in at least two states into the way company employees sold insurance policies to companies without being properly licensed to do so.

“The recent resignation of Zenefits’ CEO Parker Conrad is an important development, but it does not resolve our ongoing investigation of Zenefits’ business practices and their compliance with California law and regulations,” said California Insurance Commissioner Dave Jones in a statement. “I have directed the Department of Insurance’s Enforcement Branch to deploy additional investigative resources to the Zenefits investigation.”

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California’s Insurance Department did not disclose the details of the investigation, but a memo distributed to Zenefits employees by new CEO David Sacks and obtained by Fortune shines some light on the focus.

The memo says that the software used by Zenefits employees for pre-licensing training had a loophole that employees could use to cheat. They could use it to bypass spending the required 52 hours in mandatory online education courses for selling insurance, the memo said.

Sacks wrote to his employees that Zenefits informed the California Department of Insurance about the software and that it fired the staff members responsible for making the software and encouraging its use. He claimed that Zenefits has since disabled the software, called Macro, “on the Zenefits network or on Zenefits-issued devices.”

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“While we are taking the appropriate disciplinary action against the leaders in this Macro issue, the company is focused on remediation rather than discipline with all of the other employees who used the Macro at the direction of the company,” Sacks wrote. “As part of our commitment to our employees, we are hiring an attorney to provide counseling and advice to individual employees on these licensing issues.”

Earlier this year, Buzzfeed reported that Washington state was investigating Zenefits over its employees selling insurance policies without being properly credentialed. The report said the company could be facing similar problems in Arizona, Massachusetts, Michigan, Nevada, New Jersey, and New York.

Zenefits spokesperson Kenneth Baer said in a statement, “We are communicating and cooperating fully with regulators with regards to this issue that we discovered and self-reported to them.”