Parker Conrad, CEO of health insurance brokerage firm Zenefits, has resigned amid reports that the company allowed unlicensed brokers to sell health insurance and after a troubled history with its employees.
The Wall Street Journal reported Monday that Conrad's resignation was made public to employees by COO David Sacks, who will assume the role of CEO at the San Francisco-based company.
Sacks sent a letter to employees criticizing Conrad's business practices. In the letter, he said Zenefits has hired an auditing firm to determine whether the company under Conrad's watch disregarded state regulations. The Wall Street Journal reports that Sacks, the former COO of PayPal, has hired former federal prosecutor Josh Stein to serve as the new chief compliance officer.
Zenefits' alleged flouting of state regulations was first reported in November. The company then said it was working with regulators and was reviewing its in-house controls.
Sacks told the Wall Street Journal that Zenefits will alter its business plan by focusing more on small business customers who use the company's software.
Originally, Zenefits targeted mid-size companies with more than 100 employees, but those customers were elusive, former employees told the Wall Street Journal.
In less than two years, Zenefits had employed 1,600 employees and raised over half a billion dollars from investors, who were sold on Zenefits' business model, which gives away human resources software to small businesses and takes commissions from health insurance carriers when software users sign up for benefits.
But Zenefits had difficulties hitting revenue targets and keeping employees last year, according to the Wall Street Journal. Moreover, a large investor, Fidelity, dropped its stake by 48% on Sept. 30. Zenefits was valued at $4.5 billion last May, just two years after Conrad founded it.
The Wall Street Journal reported in December that Zenefits offered thousands of dollars to former employees to prevent claims that it did not pay employees for unused paid time off and for overtime pay.
The Zenefits shake-up comes after a December report from Start-Up Health detailed lower funding for digital health companies. Through Dec. 15, funding for digital health companies reached $5.8 billion, below 2014's $7 billion but still above the $3 billion in funding in 2013, according to the report.