The Need for Effective Compliance

Compliance is a critical function for all enterprises. Adopting appropriate standards and ensuring that they are properly implemented is key to the proper functioning of the firm. The adoption of the proper standards helps guide the company in the marketplace, contributing to the prosperity not just of its shareholders but of all.

Yet some evade good compliance by failing to adopt appropriate standards. Other fail to take the steps necessary to properly implement the standards adopted. And, some try to fake it, tell others that in fact they have good standards, properly implemented in an apparent effort to bolster their reputation and business. That appears to have been the motive of those involved in the Commission’s most recent case addressing this issue, In the Matter of Health Insurance Innovations, Inc., Adm. Proc. File No. 3-20932 (July 20, 2022).

Health Insurance Innovations is a technology platform, billing administrator and distributor of short-term and limited health insurance plans and related products. Over a three-year period, beginning in early 2017, the company and its CEO, Respondent Gavin Southwell, touted the high compliance standards of the firm. Consumers were told, for example, that the company had a 99.99% consumer satisfaction rating. Respondents also claimed that in 2016 the company had terminated a distributor because of repeated compliance issues.

When Mr. Southwell joined the firm in 2016 he learned that Simple Health, a key operating unit, and others, were misrepresenting the facts regarding the compliance failures. While Mr. Southwell increased spending on compliance and took various steps in the area, throughout the period the company had tens of thousands of dissatisfied consumers. Numerous consumers complaint to company agents. And, while the company did terminate a distributor in 2016, in fact the firm was rehired. While Mr. Southwell increased spending and some efforts in the compliance area, he failed to assess the overall situation.

In 2018 the FTC filed an emergency action to shut down Simple Health for defrauding consumers. The filing was disclosed and the stock price dropped but the situation was never fully disclosed. In March 2019 Congress announced an investigation into the situation. The stock price dropped again. The complaint alleges violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Section 13(a).

To resolve the proceedings Respondents consented to the entry of cease-and-desist orders based on the Sections cited in the Order. In addition, the firm will pay an $11 million penalty while Mr. Southwell will pay a penalty of $750,000. A Fair Fund will be created.

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