North Korea-linked creditors are seeking control of about $71.1 million in ether frozen on Arbitrum after the Kelp DAO exploit.
The plaintiffs hold nearly $877 million in unpaid United States court judgments against North Korea and now want the frozen crypto used to satisfy those claims. Their legal move has interrupted Arbitrum DAO’s plan to use the funds for victim compensation.
Court Order Puts Arbitrum Recovery Plan on Hold
A restraining notice authorized by a federal court in New York on April 30 was served to Arbitrum DAO through its governance forum. The notice bars the DAO from transferring roughly 30,766 ether while the case moves through court.
Arbitrum governance had been reviewing a proposal to move the frozen assets into a recovery program supported by Aave Labs, Kelp DAO, LayerZero, EtherFi, and Compound. The initiative aimed to compensate users affected by the exploit and reduce pressure on the Kelp DAO ecosystem.
The legal action has created a direct clash between on-chain governance and court enforcement. The DAO must now weigh its planned vote against a binding court order that restricts the movement of the assets.
Plaintiffs Seek Payment From Assets Linked to DPRK
The plaintiffs are not victims of the Kelp DAO exploit. They are creditors with long-standing terrorism-related judgments against North Korea.
Their claims combine three separate United States court judgments tied to attacks attributed to or linked with Pyongyang. These cases involve the killing of Reverend Kim Dong-shik, alleged support for Hezbollah during the 2006 Lebanon war, and the Lod Airport massacre.
Together, the judgments exceed $877 million before interest and remain unpaid. The creditors are using blockchain tracing and crypto attribution to argue that assets linked to North Korean hackers can be targeted for enforcement.
LayerZero linked the Kelp DAO-related breach to the Lazarus Group, a hacking unit widely associated with North Korean state-backed cyber operations. The company said the incident involved a design failure and was limited to Kelp DAO’s rsETH configuration.
DeFi Faces New Legal Pressure
The case could become an important test for decentralized finance. It raises the question of whether crypto linked to a sanctioned state can be seized to satisfy old terrorism judgments.
Arbitrum’s Security Council froze the assets after they were traced to addresses connected with the attacker. United States authorities have also blamed DPRK-linked actors for major international cryptocurrency thefts.
For creditors, frozen crypto may offer a rare path to recovery. For DeFi protocols, the dispute shows that governance decisions can face legal consequences beyond smart contracts. The Arbitrum vote is scheduled to close May 7, while the restraining notice remains active as litigation continues in federal court this week.
