Court Blocks Arbitrum DAO from Releasing $71 Million in Hacked Ethereum - Blockonomi
by Brenda Mary · BlockonomiTLDR:
Table of Contents
- TLDR:
- Centralized Governance Move Draws Court Scrutiny
- Aave Coalition Plans Stall as Legal Battle Begins
- A US court froze $71M in ETH recovered from the KelpDAO hack, blocking Arbitrum DAO from distributing funds.
North Korea terror creditors secured a garnishment order, linking the stolen ETH directly to the Lazarus Group.
Arbitrum’s Security Council seizure brought the assets into US jurisdiction, enabling the court to intervene fast. Aave’s recovery coalition, backed by Lido, Mantle, and EtherFi, now awaits a formal divestiture hearing in New York.
A U.S. court has frozen $71 million in Ethereum held by the Arbitrum DAO, recovered 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. Terror attack creditors with judgments against North Korea filed the legal action.
The freeze now stalls compensation plans for victims across Aave, LayerZero, and other affected protocols.
Centralized Governance Move Draws Court Scrutiny
Arbitrum’s Security Council 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. DAO voters then approved a plan to send the ETH to a multisig wallet for victim compensation. That approval now carries little weight under the court order.
Han Kim and Yong Seok Kim are U.S. nationals whose relative was killed by North Korea. 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, directly linking the ETH to Pyongyang.
Attorney Gabriel Shapiro reviewed the court filing and confirmed the freeze carries real legal weight. He noted that plaintiffs used specific garnishment statutes to block the DAO from acting unilaterally. Shapiro took to X to spell out exactly what the order means for the DAO and its recovery plans. He wrote:
“Arbitrum DAO is not allowed to do anything with the KelpDAO funds for now, until a divestiture hearing… they are supposed to actually litigate that, not just decide on their own what to do with it.”
The case presents a direct conflict between decentralized governance and U.S. judicial authority. The Security Council’s intervention, intended to protect users, ultimately brought the assets within U.S. court jurisdiction.
That centralized action created a legal foothold the plaintiffs quickly used. The DAO now faces litigation it never anticipated when the Council first froze the funds.
Aave Coalition Plans Stall as Legal Battle Begins
Aave had assembled a recovery coalition pulling resources from Lido, Mantle, and EtherFi. The group pooled ETH specifically to backstop rsETH holders affected by the April exploit.
Their entire plan depended on the seized funds flowing back through Arbitrum governance. The court order has placed that timeline in limbo.
One economics lead at MegaETH noted publicly that the seizure exposed the DAO to claims it never prepared for. The freeze essentially converted a DeFi governance decision into a matter for U.S. federal courts.
Protocols involved in the recovery effort must now wait for a formal divestiture hearing. No timeline for that proceeding has been confirmed.
The situation marks a rare moment where DeFi governance collided directly with U.S. legal enforcement. Creditors holding North Korea-related judgments now stand between the DAO and its recovery plan.
The outcome will likely shape how DAOs respond to hacked funds in future exploits. Legal observers are watching closely as the case moves forward in New York.