Zenefits CEO David Sacks REUTERS/Beck Diefenbach Zenefits has just settled with the state of California after the company admitted earlier this year that it was selling insurance without a license and that it may have dodged some of the legal requirements when training employees for their California insurance licenses.

California announced Zenefits would pay a $7 million fine.

This includes a $3 million penalty for licensing violations, including allowing unlicensed employees to sell insurance, a $4 million penalty for "subverting" the licensing education requirements and a $160,000 payment to reimburse the Department of Insurance for investigation and examination expenses, the California insurance commissioner said in a press release (posted in full below).

This is pocket change for the once high-flying startup, which raised $500 million in its first couple of years in business, based on its fantastically fast growth projections.

But the disclosures of its licensing issues led to the sudden resignation of its founder CEO Parker Conrad, replaced by investor, COO, and Valley executive A-lister David Sacks. Since then, Sacks has been negotiating with state regulators, many of who imposed far smaller fines.

Sacks also banned the practice of drinking alcohol at work, laid off workers, renegotiated with investors and reduced the valuation of the company by half to $2 billion. He offered the remaining workers a chance to walk with severance if they didn't want to stay, fired other executives involved in the licensing issues, reorganized leadership and launched a new version of the company's main product. Zenefits offers HR software that it offers for free to customers who buy insurance from it.

Resolving these issues with the state of California, the company's home state and biggest market, end the biggest noose hanging over the company's head.

A company spokesperson tells us:

“We are pleased to reach a settlement with the California Department of Insurance, which recognized our remediation efforts by suspending half the fine. We now have a clean bill of health from our lead regulator as well as 16 other states. New management has righted the ship at Zenefits. We’ve moved past these historical issues, and now we’re focused on serving our 20,000+ customers and delivering All-in-One HR to small businesses.”

Here's the full press release.

Insurance commissioner's enforcement action against Zenefits results in multi-million dollar penalty

Zenefits agrees to comply with agent licensing and education regulations

SACRAMENTO, Calif. - Insurance Commissioner Dave Jones today announced the enforcement action taken against Zenefits for multiple license violations has resulted in a $7 million penalty. Zenefits was charged with allowing unlicensed employees to transact insurance and circumventing insurance agent education requirements. This is the largest penalty assessed by any commissioner against Zenefits and one of the largest penalties for licensing violations ever assessed in the department's history.

A 2013 start-up, Zenefits is a San Francisco based company whose business model was to provide online HR services to businesses and then encourage those same businesses to use Zenefits as an insurance broker.

"Businesses and consumers should have confidence that anyone selling insurance to them in California is doing so in compliance with our consumer protection laws," said Insurance Commissioner Dave Jones. "Our enforcement action has resulted in Zenefits paying substantial monetary penalties for their licensing violations and ensures Zenefits complies with all of California's insurance laws and regulations or they will face additional automatic penalties and sanctions."

The California Department of Insurance launched an investigation in 2015, after receiving complaints that Zenefits employees were transacting insurance without a license. Shortly after the investigation into Zenefits' business practices and compliance began, the company announced publicly that they were not complying with insurance laws and regulations, which was followed by the resignation of Zenefits' CEO, Parker Conrad.

"In California, we value innovation and new business models, including Internet based start-ups, but we also insist that consumer protections laws are followed," said Jones. "Zenefits is an example of an Internet based start-up whose former leaders created a culture where important consumer protection laws were broken-a bad strategy that placed the company at risk and that other start-ups should not follow given our strong consumer protection laws and the Department of Insurance's rigorous enforcement of those laws."

The settlement agreement obtained by the insurance commissioner includes a $3 million penalty for licensing violations, including allowing unlicensed employees to transact insurance, a $4 million penalty for subverting the pre-licensing education and study-hour requirements for agent and broker licensing, and a $160,000 payment to reimburse the Department of Insurance for investigation and examination expenses.

In recognition of the self-reporting and remedial actions already implemented by the company, including the replacement of the former CEO, retraining of all licensed producers, and implementation of an automated process to verify that only licensed individuals solicit and sell insurance products, the settlement provides that half of the total $7 million in monetary penalties are suspended. The suspended portion of the monetary penalty will be reinstated if Zenefits fails to confirm continued compliance with licensing and regulatory mandates based on an examination of the company's business practices to be conducted in 2018."