Zenefits, the embattled HR startup said to be valued at $4.5 billion, is under investigation in Washington state for allowing salespeople to sell health insurance without the proper licenses, reports BuzzFeed News.
In Washington, where the official inquiry was opened by state agencies earlier this year, selling insurance without a license is a Class B felony, which means a prison sentence of up to 10 years and a civil penalty of of up to $25,000 per violation.
Worse, the report indicates that the practice may have been widespread, with salespeople "in at least seven states" engaging in similar practices since the summer of 2014. Zenefits promises in that report that its salespeople take the proper steps to get licensed, and it's unknown if this practice has continued to the current day.
Zenefits itself is fully licensed as an insurance broker, since its flagship software acts as a middleman between its customers and health insurance companies. But regulators asked the company to have each individual employee licensed on their own terms.
According to former Zenefits employees surveyed by BuzzFeed, though, salespeople knew of the requirement to get licensed, but managers took a hands-off approach, focusing instead on making sure that they just kept selling. In fact, some employees reportedly failed their licensing exams, but were still allowed to work the phones.
It's apparently a tricky violation for regulators to catch: There's no system of record to see who sold what insurance to whom, so the government is forced to rely on whistleblowers and tipsters — mainly customers who check public-facing databases to see if their insurance agent is officially licensed.
In a comment, a Zenefits spokesperson says:
Zenefits’ policy is that every individual who sells insurance at Zenefits, as well as the company itself, must be licensed to sell insurance. Zenefits has more than 280 active resident insurance licenses and more than 2500 active non-resident licenses, and these licensed brokers have sold thousands of insurance policies over the past two-and-a-half years. Any allegations of individuals violating our licensure or other compliance policies will be thoroughly investigated, and we will take appropriate remedial action.
All of this comes at a bad time for Zenefits, which has had to deny public allegations that its business was in big trouble. Indeed, a recent report indicated that Fidelity had written down its investment in Zenefits by half after learning that salespeople were regularly missing their goals.
