Zenefits, a software startup valued at $4.5 billion, said on Monday it had replaced founder and Chief Executive Parker Conrad and appointed a new leader for the troubled tech company.
David Sacks, a former executive at Yammer and PayPal who joined Zenefits a year ago as chief operating officer, has taken over as CEO.
"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," Sacks said in a letter to employees. "As a result, Parker has resigned."
Zenefits provides software for businesses to automate aspects of their human resources services, including healthcare benefits, stock options, maternity leave and vacation time.
Once considered by venture capitalists as the fastest-growing software startup, Zenefits has come under fire for allegedly flouting insurance laws and failing to deliver on promises to customers. It is the latest example of a unicorn -- a venture-backed tech firm worth $1 billion or more -- whose business appears far less sound than investors believed it to be.
Recently, Zenefits came under investigation in Washington state for allegations it let unlicensed brokers sell health coverage. Media site BuzzFeed reported, following an investigation of the company, that it allowed salespeople without licenses to act as insurance brokers in at least seven states.
San Francisco-based Zenefits said on Monday it appointed its first chief compliance officer, who is in charge of ensuring that the company complies with regulations and broker licensing requirements.
"Our culture and tone have been inappropriate for a highly regulated company," Sacks said.
In a statement released by Zenefits, Conrad said he was proud of the company "but recognize that our company's management infrastructure and policies haven't kept pace with our meteoric growth."
Reuters could not immediately reach Conrad for comment.
The company also said Peter Thiel, co-founder of PayPal and a high-profile Silicon Valley investor, would join the board.
Zenefits launched as a high-tech health insurance broker, working as the middleman between businesses and healthcare providers such as Anthem Blue Cross, making money off the commission or broker fee. That sparked a turf war with traditional brokers across the country.
It also waged battles with insurance regulators who argued that Zenefits could not give its free software to businesses while also serving as their insurance broker.
Conrad, a survivor of testicular cancer and advocate for healthcare reform, founded the company in 2013. He raised more than $500 million from investors, including two rounds of financing from venture firm Andreessen Horowitz within four months.
At one point, the company was growing 30 percent month-over-month, and it hired thousands of employees and opened offices in Arizona in 2014 and 2015.
(Reporting by Heather Somerville; Editing by Peter Cooney)