(Bloomberg) -- Zenefits has been under investigation by the California Department of Insurance since last year, the state agency disclosed, saying the resignation of co-founder and Chief Executive Officer Parker Conrad earlier this week doesn’t resolve compliance issues at the human-resources software startup.

“New technologies and new business models can bring value and convenience to California consumers, but businesses deploying new technologies and new business models must comply with California’s strong consumer protection laws,” Insurance Commissioner Dave Jones said in a statement.

Parker Conrad (left) and David Sacks.
Parker Conrad (left) and David Sacks. Credit: Bloomberg

Conrad was replaced on Monday by Zenefits Chief Operating Officer David Sacks, who founded Yammer and was a Microsoft Corp. executive. In a memo posted online, Sacks cited “inadequate” processes, controls and compliance. The fast- growing startup, based in San Francisco, was valued by investors at $4.5 billion last year.

“We are communicating and cooperating fully with regulators with regards to this issue that we discovered and self-reported to them,” Kenneth Baer, a spokesman for Zenefits, wrote in an e- mail.

BuzzFeed earlier reported California’s probe of Zenefits. Washington state also has an active investigation into the company. Conrad didn’t respond to a request for comment.

In an e-mail to employees obtained by Bloomberg, Sacks said the company had reported “a serious issue” to the California Department of Insurance involving many of its employees in the state. They used software to bypass part of the 52 hours of training required by law. Zenefits fired staff who created or encouraged the use of the tool, Sacks wrote in the e-mail.

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"Businesses deploying new technologies and new business models must comply with California’s strong consumer protection laws."

“The company takes full responsibility for its actions,” Sacks wrote. “Ultimately we will will work closely with the California Insurance Commissioner, as our lead regulator, as to the appropriate consequences or sanctions.”

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