US Law Firm Moves To Block Arbitrum From Moving North Korea Kelp DAO Exploit Funds

A US law firm has obtained a court order blocking Arbitrum DAO from moving tens of millions of dollars in frozen Ether linked to the Kelp DAO exploit — a move that could significantly delay repayment to victims of one of the largest DeFi hacks of 2026.

Gerstein Harrow LLP filed a restraining notice and three writs of execution to prevent Arbitrum DAO from moving frozen $ETH from the Kelp DAO hack, arguing that links to North Korea give its clients a legal claim to the crypto. A New York district court signed off on the restraining notice and writs of execution, preventing the DAO from moving the Ether under threat of contempt of court.

Background: The Kelp DAO Exploit and the Frozen Funds

Kelp DAO suffered a $292 million hack on April 18, believed to have been carried out by TraderTraitor, a subgroup of North Korea's state-backed hacking unit, Lazarus Group. Days later, the Arbitrum Security Council took emergency action to freeze 30,766 $ETH, worth over $73 million, held in a wallet linked to the exploit.

Arbitrum governance had begun discussing a plan to send the frozen funds to a recovery effort backed by Aave Labs, Kelp DAO, LayerZero, EtherFi, and others — a plan that would have helped repay users and reduce bad debt risks in DeFi protocols exposed to the hack. However, the New York court's order now blocks any transfer, putting the DAO's recovery proposal on hold.

The Legal Argument — and the Wider Stakes

Gerstein Harrow argued that its clients, who were not affected by the Kelp exploit, won default judgments against North Korea in three separate US court cases in 2010, 2015, and 2016 and are owed a collective $877 million in compensatory and punitive damages, plus interest. Gerstein stated in the restraining notice that the stolen Ether is "property" in which the DPRK has a stake because the hacker group is affiliated with the country.

The legal tool being used is CPLR §5222(b), a New York enforcement mechanism that allows creditors to freeze assets simply by serving a restraining notice, without first getting a new court order — though the target can challenge it afterward. Once served, the recipient is barred from moving the assets for up to a year or until the judgment is resolved.

Failure to comply with the restraining order by moving the funds prior to a final court decision may yield legal consequences and personal liability for members of the Arbitrum Security Council, Arbitrum DAO voters, and even individual Arbitrum token holders.

If the creditors win, the frozen $ETH would go to North Korea victims rather than Kelp DAO users affected by the exploit. Gerstein Harrow has filed similar cases in the past, arguing its clients have a claim to funds stolen by the DPRK and frozen by crypto firms — including a claim in February against funds frozen by Tether that were stolen in the 2023 Heco Bridge hack.

The case sets up a direct clash between US terrorism sanctions enforcement and decentralized governance on Arbitrum — and raises difficult questions about who bears the cost when competing legal claims converge on the same pool of recovered crypto assets.

Sources
CoinTelegraph: Law Firm Files Restraining Notice for Kelp Exploit ETH
CoinDesk: Lawyer Seeks Funds for Victims of North Korean Terrorist Acts
BeInCrypto: Arbitrum's KelpDAO Freeze Hit by US Court Order