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A U.S. court has frozen $71 million in Ethereum held by the Arbitrum DAO, after the Lazarus Group allegedly stole $292 million from KelpDAO on April 18, 2026. The Southern District of New York issued the order on May 1, barring any transfer of the seized funds. The action was brought by terror attack creditors with judgments against North Korea.
The freeze is expected to stall compensation plans for victims across Aave, LayerZero, and other affected protocols. Arbitrum’s Security Council had seized 30,766 ETH following a bridge exploit that drained roughly $290 million from KelpDAO last month. The Council coordinated with law enforcement before routing the funds into governance control, and DAO voters approved a plan to send the ETH to a multisig wallet for victim compensation.
Under the court order, that governance approval cannot be acted on. Attorney Gabriel Shapiro, reviewing the filing, said the plaintiffs used specific garnishment statutes to prevent the DAO from acting unilaterally. He described the order as legally binding on the DAO, stating that Arbitrum DAO is not allowed to do anything with the KelpDAO funds for now until a divestiture hearing, and that the matter must be litigated rather than decided internally.
Han Kim and Yong Seok Kim, U.S. nationals, are among the plaintiffs. Their relative was killed by North Korea, and they hold over $300 million in damages awarded by a U.S. court in 2015. Their attorneys moved quickly, securing the garnishment order just days before the DAO planned to act.
LayerZero had publicly attributed the April hack to the Lazarus Group, linking the stolen ETH to Pyongyang. Shapiro characterized the freeze as carrying real legal weight, emphasizing that the order places constraints on the DAO’s ability to proceed with its planned compensation mechanism.
The case highlights a conflict between decentralized governance and U.S. judicial authority. While the Security Council’s intervention was intended to protect users, it brought the assets within U.S. court jurisdiction. That centralized step created a legal foothold that the plaintiffs used to obtain the freeze, leaving the DAO facing litigation it had not anticipated when the Security Council first seized the funds.
Aave had assembled a recovery coalition drawing on resources from Lido, Mantle, and EtherFi. The coalition pooled ETH to backstop rsETH holders affected by the April exploit, and its plan depended on the seized funds flowing back through Arbitrum governance. With the court order in place, that timeline has been put into limbo.
Protocols involved in the recovery effort must now wait for a formal divestiture hearing, and no timeline for that proceeding has been confirmed. One economics lead at MegaETH said publicly that the seizure exposed the DAO to claims it had not prepared for, effectively turning a DeFi governance decision into a matter for U.S. federal courts.
The outcome of the New York proceedings will determine whether and how the seized ETH can be used for victim compensation. Legal observers are watching closely as the case moves forward, with the dispute expected to influence how DAOs respond to hacked funds in future incidents.
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