23andMe won permission from a judge to try to sell information about customers’ medical and ancestry-related data

The bankrupt genetic testing company 23andMe Holding Co. has received court approval to pursue the sale of its customer data related to health and ancestry — widely viewed as the firm’s most valuable asset — raising fresh concerns over privacy and data security amid the company’s collapse.

News of the court’s decision triggered a rally in the company’s stock, with shares soaring by as much as 158% as investors bet that a sale might generate enough cash to repay the company’s debts — and potentially leave something for shareholders. Under U.S. bankruptcy law, shareholders receive payouts only after all creditors — in this case, at least $214 million — are paid in full.

Read More: 23andMe Shares Surge on Permission to Sell Some Customer Data

As part of the approved sale procedures, 23andMe laid out a fast-track timeline for potential buyers, setting May 7 as the deadline for binding offers and scheduling a final court hearing the following month. However, U.S. Bankruptcy Judge Brian C. Walsh ordered the company to slow the process by two weeks, partly to accommodate his availability and partly to give creditors more time to weigh in before a sale is finalized.

“My overall reaction to the timeline is that it’s pretty tight,” Judge Walsh said during 23andMe’s initial bankruptcy hearing in St. Louis. At his request, the company agreed to move the final hearing date from June 2 to June 17.

Walsh’s ruling did not settle ongoing concerns about the planned auction of sensitive genetic data or complaints from shareholders about the months 23andMe spent seeking a buyer before ultimately filing for bankruptcy protection earlier this week.

Despite having collected DNA samples from over 15 million individuals, 23andMe has struggled to turn a profit since going public in 2021. Now, the genetic data derived from those saliva samples has become the company’s most monetizable asset, prompting fears among customers about the future use of their personal information. Bankruptcy officials have echoed those concerns.

At the hearing, Judge Walsh acknowledged the need to act with some urgency, given how much time the company had already spent seeking a buyer. Still, he emphasized the importance of balancing speed with caution. “The goal should be to balance the desire to move quickly with the desire to avoid collateral damage,” he said.

Calls for Oversight

Carole J. Ryczek, representing the U.S. Trustee’s office — the federal agency tasked with overseeing bankruptcy cases — told the court that a privacy ombudsman should be appointed to supervise the handling of customer data during the sale process.

“This case needs a neutral third party,” Ryczek said, to ensure customers’ sensitive genetic information is protected. Attorneys and investment bankers for the company declined to comment on the estimated value of the data.

Judge Walsh did not make a determination on whether he would approve the appointment of a privacy ombudsman or respond to demands from two investors for the formation of an official shareholder committee. Those investors have raised objections to how the company handled efforts to sell itself prior to declaring bankruptcy.

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