Zenefits, the $4.5 billion startup whose CEO resigned this week, created a secret software tool to let California sales reps fake the completion of an online training course that health insurance brokers must take before getting a license, according to an email sent to staff on Thursday.
The program, known as a macro, made it appear that aspiring health insurance brokers were completing a mandatory online course, while in fact allowing them to spend less than the legally required 52 hours on the training, said David Sacks, who took over as Zenefits CEO this week, in the staff email.
After they faked the training course, sales reps were directed to sign a certification, under penalty of perjury, that they had spent the required 52 hours doing the work, a lawyer for Sacks told BuzzFeed News.
The revelation of the existence of the program raises serious questions about the credentials of Zenefits brokers in California, the company's biggest market, and points to potential legal trouble. The discovery of the program led directly to the ouster this week of Parker Conrad, the Zenefits co-founder and CEO, the lawyer said.
The San Francisco–based Zenefits, an intermediary in the health insurance business, opened an internal investigation after BuzzFeed News reported last fall that it repeatedly failed to enforce legal requirements that anyone selling a health insurance policy have an appropriate state license. That was how executives discovered the macro, which Conrad had created based on a belief that 52 hours was too long to spend in training, the lawyer for Sacks said.
In late January, according to the lawyer, Sacks, who was then the chief operating officer, learned that the program not only allowed brokers to fake the training but also directed them to make a certification under penalty of perjury that they had done so.
Zenefits voluntarily submitted its findings to regulators, Sacks told staff on Thursday. As BuzzFeed News reported, the California Department of Insurance is investigating whether Zenefits complied with laws and regulations in California.
Sacks said Zenefits had "terminated leaders who created, propagated and encouraged the use" of the macro program, and that "we will take additional disciplinary steps as necessary to address the issue." He added that use of the software on the Zenefits network had been disabled.
The program kept sales reps logged into the training course and prevented them from being logged out due to inactivity, Sacks said. It did not walk them through the required learning material or quizzes. Sacks added that this program did not pertain to the broker exam, a later step in the process.
"We are developing a comprehensive remediation and retraining program for all licensed employees who obtained and used the Macro in connection with their California resident broker license," Sacks said in the email. "We will work with the Department of Insurance on the development of those remedial measures."
"The company takes full responsibility for its actions regarding the Macro," he continued. "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. 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."
Conrad could not immediately be reached for comment.
Here's the full email sent to Zenefits staff by new CEO David Sacks, which was obtained by BuzzFeed News:
As you may have seen, the California Department of Insurance has begun an investigation of licensing issues at Zenefits that we self-reported. We welcome this announcement and intend to fully cooperate with the Commissioner’s investigation. We are committed to full remediation and ensuring complete compliance with all licensing requirements.
I want to share with you a serious issue that we self-reported to the Department. Many of our California sales representatives received access to a software tool called a “Macro” that may have allowed them to complete mandatory online pre-licensing education courses offered by a third-party test preparation provider in less than the legally required 52 total hours. The Macro functioned to keep a person logged into the course and prevented the person from being logged out for inactivity. The Macro did not advance through the required material or quizzes in the education course -- the Macro only kept the person logged in. The Macro only pertained to the prelicensing education course and did not affect the broker exam taken later. Use of the Macro enabled -- but did not cause -- a person to spend less than the 52 hours of required time in the prelicensing course.
The company launched an internal investigation of the use of the Macro within the company. Based on the results of that ongoing investigation, we have already taken the following actions:
1) We informed the California Department of Insurance about the Macro issue. Again, we welcome the Department’s investigation and will be fully cooperating with that process.
2) We have terminated leaders who created, propagated and encouraged the use of the Macro, and we will take additional disciplinary steps as necessary to address the issue.
3) We have disabled the use of iMacros on the Zenefits network or on Zenefits-issued devices.
4) We are developing a comprehensive remediation and retraining program for all licensed employees who obtained and used the Macro in connection with their California resident broker license. We will work with the Department of Insurance on the development of those remedial measures.
The company takes full responsibility for its actions regarding the Macro. As I said in my email to you on Day 1, the company did not have in place the proper systems, processes, and culture to ensure broker licensing compliance. 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. 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.
Ultimately we will will work closely with the California Insurance Commissioner, as our lead regulator, as to the appropriate consequences or sanctions.
Moving forward, any Zenefits employee who commits a licensing violation or does not promptly comply with our remediation steps will result in immediate disciplinary action, up to and including termination.
We must be -- and I know we can be -- strictly compliant in being properly licensed, for the benefit of our customers and our regulators.
As I told you on Monday, in order for us to move forward as a company, we cannot seek to hide or downplay our broker licensing issues. We must be transparent and admit it and remediate it as soon as possible. Then we can regain our positive focus on building our business and better serving customers, employees, partners, and regulators. Together with you and our new Board, we are quickly executing on the vision we described on Day 1.