Parker Conrad, a founder of the benefits software startup Zenefits, a fast-growing provider of software aimed at companies to manage employee health benefits, has stepped down as CEO and as a director of the company. David Sacks, the company’s COO, was named to replace him.
Conrad’s departure comes after a series of embarrassing disclosures that its employees may have sold health insurance without being licensed to do so. Last week, BuzzFeed reported that more than 80 percent of Zenefits policies in force in Washington state as of last August had been sold by unlicensed employees.
The controversy hits Zenefits at the core of its business. The startup, which nine months ago raised $500 million from investors at a valuation of $4.5 billion, gives away its software for managing employee health benefits, time and attendance tracking, flexible spending accounts and other benefits. It makes its money by acting as an insurance broker, reselling policies from health insurance providers, booking a percentage from the sale as revenue.
In an email to employees, Sacks insisted that steps will be taken to ensure that all employees responsible for selling insurance will be licensed: “We sell insurance in a highly regulated industry. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die. The fact is that many of our internal processes, controls and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned.”
Sacks said that Zenefits has hired an auditing firm to review its internal licensing procedures. He also named Josh Stein, a former federal prosecutor, as Zenefits’ chief compliance officer.
The company also added three new directors: Peter Thiel, co-founder of PayPal and of VC firm Founders Fund; Antonio Gracias, founder and managing partner of Valor Equity Partners; and Bill McGlashan, founder and managing partner at the private equity firm TPG Growth.
Sacks went on to say that Zenefits’ emphasis on winning in the marketplace weakened its attention to following proper procedures. “Our culture and tone have been inappropriate for a highly regulated company,” he wrote. “Zenefits’ company values were forged at a time when the emphasis was on discovering a new market, and the company did that brilliantly. Now we have moved into a new phase of delivering at scale and needing to win the trust of customers, regulators, and other stakeholders.”
Zenefits proved controversial from its beginning, shaking up the sleepy corners of the health insurance industry. Established brokers in many states complained to state regulatory bodies. One such regulator in Utah even sought to ban Zenefits from operating in the state, until it fought back in court.
Sacks was appointed COO in late 2014. He didn’t need the work. He’s a member of the so-called PayPal Mafia, and was the payment company’s COO until its sale to eBay. He then founded Yammer, a workplace collaboration tool similar in some respects to Slack, which he sold to Microsoft in 2012.
This article originally appeared on Recode.net.