Arbitrum DAO Faces U.S. Court Freeze on $71 Million Worth of ETH

A U.S. court ruling has placed legal limitations on Arbitrum DAO’s intended use of frozen funds linked to a hacking incident.

As stated in submissions approved by the U.S. District Court for the Southern District of New York, plaintiffs issued a restraining order on May 1 via Arbitrum’s governance forum, barring the transfer of 30,766 ETH, valued around $71.1 million, which had been frozen by the Arbitrum Security Council post-Kelp DAO exploit.

Legal representatives for the plaintiffs, who are identified as victims holding terrorism-related judgments against North Korea, claim that the seized ether constitutes property in which the DPRK has an interest. Their argument is based on allegations that the funds were stolen by the Lazarus Group on behalf of Pyongyang, a linkage previously noted by LayerZero in its investigation of the breach.

Arbitrum’s involvement began on April 20, when its Security Council moved the assets to a controlled wallet after identifying addresses linked to the attacker. An update on April 21 revealed that the freeze was in accordance with law enforcement advice regarding the identity of the exploiter, assuring that this action did not disrupt user activities or applications.

Gerstein Harrow LLP spearheaded the lawsuit on behalf of Han Kim and Yong Seok Kim, whose case stems from the murder of Reverend Kim Dong-shik by North Korean operatives. A U.S. court awarded approximately $330 million in damages in that case, and the latest filing consolidates that judgment with two others, Kaplan v. DPRK and Calderon-Cardona v. DPRK, raising total claims to over $877 million, exclusive of interest.

The plaintiffs’ arguments reference the Foreign Sovereign Immunities Act and the Terrorism Risk Insurance Act, which allow creditors to claim assets linked to state sponsors of terrorism. The filing identifies both Lazarus Group and APT-38 as agencies of the DPRK.

Governance Vote Contradicting Legal Claim

Arbitrum DAO initiated a Snapshot vote on April 30 to decide if the frozen ETH should be directed toward a recovery initiative launched after the exploit. The proposal, developed by Aave Labs with input from Kelp DAO, LayerZero, EtherFi, and Compound, seeks to allocate the funds into a multi-signature wallet overseen by ecosystem participants and the security firm Certora.

Voting results show overwhelming support of over 99% for the proposal at the time of publication, with a deadline for feedback set for May 7. The design limits the wallet’s functionality to receiving recovered assets and using them to restore backing for rsETH.

Aave Labs has included an indemnification clause in the proposal, pledging to shield the Arbitrum Foundation, Offchain Labs, and Security Council members from claims related to the freeze or release of funds. The relevance of such protections amid an active court-ordered constraint remains unclear.

This conflict arises in the context of a $292 million exploit that drained 116,500 rsETH from Kelp DAO’s LayerZero-based bridge on April 18. LayerZero’s investigation indicated that a compromise of RPC nodes and a 1-of-1 verifier arrangement allowed a questionable cross-chain message to gain validation, while Kelp DAO maintained that the setup adhered to default deployment parameters.

On-chain analytics referenced in subsequent reports suggested that the attacker moved funds through Arbitrum and converted assets into Tron-based USDT, a tactic analysts believe was meant to obscure the transaction trail. Estimates reported by Yahoo Finance suggested that crypto thefts linked to North Korea reached nearly $600 million in the first quarter, with the Kelp DAO incident accounting for a substantial share.

While Arbitrum’s freeze was initially seen as a step toward recovery, the court-backed claim has now created conflicting demands over the same asset pool, placing the DAO’s future actions under legal scrutiny.