Having unlicensed employees selling insurance policies is obviously a big no-no and a major ethical faux-pas, but apparently it happened recently at a prominent Silicon Valley startup.

San Francisco-based Zenefits, one of the fastest-growing software as a service (SaaS) companies in history, offers cloud-based software to companies to manage their human resources, with a particular focus on helping them with health insurance coverage.

But according to a BuzzFeed News investigation, some of the Zenefits employees helping businesses secure health insurance coverage may have been doing so without the proper licensure – and with the knowledge of management.

The BuzzFeed News report found Zenefits “allowed numerous salespeople to act as insurance brokers in at least seven states without licenses to do so, according to internal emails and records, as well as interviews with eight former employees with direct knowledge of the matter.”

The report went on to say it has found evidence of unlicensed sale of insurance by Zenefits employees dating as far back as summer 2014 and continuing through summer 2015.

At least one regulator, the insurance commissioner in Washington state, is currently examining whether Zenefits operated there without licenses, according to a spokesperson for the agency, Stephanie Marquis. The Washington inquiry began in early 2015 and has not yet been resolved, she said. Under Washington law, anyone who knowingly sells, solicits, or negotiates insurance without the proper state license is guilty of a Class B felony, which can carry a prison sentence of up to 10 years, as well as a civil penalty of up to $25,000 for each violation.

The BuzzFeed News report goes on to say Zenefits sales reps were told that they needed licenses to do their job, but managers in many cases showed a “blasé” attitude toward the requirement, pushing the unlicensed reps to meet sales quotas.

In response, Zenefits issued a statement on Nov. 24, 2015, saying that it is, and always has been, Zenefits’ policy that every individual who sells insurance at Zenefits, as well as the company itself, must be licensed to sell insurance.

“When we started Zenefits, we followed a practice common to many small independent brokerages of having each broker licensed in their home state and having the agency itself also registered in all 50 states so as to allow out-of-state sales. As we grew and heard from regulators that they wanted each licensed broker individually to acquire a non-resident license, we set out to do just that,” according to the statement.

The statement goes on to list how its compliance procedures have evolved as the company has grown, including these bullet points:

• We have taken corrective action, including terminating the employee, when we have learned of violations, either because individuals failed to pass the brokerage exam or have otherwise violated our licensing policies.

• Any accusations of other individuals violating our licensure policies will be thoroughly investigated, and we will take appropriate remedial action.

It remains to be seen what the outcome and consequences of the alleged breaches may be, but the situation should act as a warning to companies about the importance of proper licensure for any employees involved in the selling of policies or even providing advice to consumers.

Properly licensed health insurance agents, already under attack from the many headaches created by PPACA and carriers who are eliminating commissions for on-exchange business have a reason to be wary and frustrated at reports of unlicensed people selling or providing allegedly “unbiased” advice. This often bad advice provided by people without the proper training, knowledge and experience can end up harming consumers to the tune of thousands of dollars due to inappropriate plans, not to mention the unwarranted black eye it gives to legitimate health insurance agents.

Allowing unqualified people to sell insurance is certainly ethically troubling enough, but it is one of several unpleasant new realities faced by experienced health insurance professionals.