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A New York federal court has complicated Arbitrum DAO’s plan to compensate victims of last month’s $292 million Kelp DAO exploit by issuing a restraining notice that blocks the movement of a large amount of frozen ether.
On May 1, lawyers for the plaintiffs served Arbitrum DAO, through a forum post, with the notice barring the DAO from moving 30,766 ETH (about $71.1 million). The ether had been frozen on April 20 by the Arbitrum Security Council after tracing the funds to addresses controlled by the Kelp DAO exploiter. The notice was authorized for service by the U.S. District Court for the Southern District of New York.
The notice treats the frozen ether as property in which North Korea has an interest, on the theory that the funds were stolen by Lazarus on Pyongyang’s behalf. LayerZero attributed the bridge breach to the North Korean state-sponsored Lazarus Group, which has also been linked to the 2022 Ronin Network and 2025 Bybit hacks.
The plaintiffs are described as victims of terrorism. They were not affected by the Kelp incident itself; instead, they hold older default judgments against the DPRK that have remained unpaid for years. The notice names Arbitrum DAO as a garnishee.
The case was filed by Gerstein Harrow LLP on behalf of Han Kim and Yong Seok Kim, U.S. nationals whose family member, Reverend Kim Dong-shik, was abducted in China and killed by North Korean agents. A 2015 ruling by the U.S. District Court for the District of Columbia, on remand from the D.C. Circuit, produced a roughly $330 million default judgment against the DPRK in that matter.
The restraining notice also bundles two other unsatisfied judgments against North Korea:
Combined, the face value across the three judgments exceeds $877 million, plus more than a decade of post-judgment interest in the older cases.
The legal theory cited in the notice rests on the Foreign Sovereign Immunities Act and the Terrorism Risk Insurance Act. Together, the framework allows judgment creditors of a state sponsor of terrorism to attach property held by the regime or its agencies and instrumentalities.
The notice names APT-38 and the Lazarus Group as DPRK instrumentalities.
Separately, Arbitrum DAO opened a Snapshot temperature check on April 30 on a proposal authored by Aave Labs. The proposal, co-authored by Kelp DAO, LayerZero, EtherFi, and Compound, would send the frozen ETH to DeFi United, a cross-protocol relief fund organized after the hack. Voting is set to conclude on May 7.
The proposal would direct the funds to a 3-of-4 Gnosis Safe co-signed by Aave, Kelp DAO, EtherFi, and onchain security firm Certora. The Safe is described as designated solely to receive recovered ETH and apply it toward restoring rsETH’s economic backing. As of publication time, over 99% of votes were in favor.
The Aave proposal also includes an uncapped indemnification clause from Aave Labs covering the Arbitrum Foundation, Offchain Labs, and individual Security Council members for any claims arising out of the freeze or release. Whether that private indemnification would have any effect in the presence of an active restraining notice was described as an open question.
Blockchain sleuth ZachXBT criticized the plaintiffs on X, calling the effort “predatory” and arguing that the strategy targets alleged DPRK victims from decades ago with “zero relation” to crypto exploits or hacks. ZachXBT also said the plaintiffs’ approach resembles prior attempts in other cases involving Lazarus-linked activity.
Yearn contributor banteg argued separately that the DAO could be within its rights to ignore the order outright, citing the claim that the funds have a clean provenance to Kelp and LayerZero hack victims. He urged parties drafting recovery proposals to “skip any intermediate multisigs and move funds to the recovery contracts directly,” aiming to reduce pressure on individual signers.
Gerstein Harrow has pursued similar strategies in earlier litigation, including arguments that DAOs should be treated as unincorporated associations whose individual members can be held liable for the entity’s conduct. The article says at least one federal judge has allowed claims to proceed on that theory.
With the restraining notice in place, the legal posture leaves two open questions for Arbitrum’s delegate base over the next four days: whether ARB holders who vote yes on the DeFi United proposal can be held personally liable for any subsequent transfer, and which creditors would have the stronger claim in a recovery scenario where stolen crypto is traceable both to immediate exploit victims and to a sanctioned state sponsor with prior unsatisfied judgments.
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