Judge Clears Arbitrum to Move $71M in Frozen Ether

A federal judge in Manhattan on Friday modified a restraining notice to allow Arbitrum DAO to initiate a governance vote to transfer about $71 million in frozen Ether to a wallet controlled by Aave LLC. The order comes after an April exploit tied to rsETH and preserves pending civil claims by terrorism victims against the assets.

U.S. District Judge Margaret Garnett of the Southern District of New York changed the terms of the freeze to permit an onchain governance vote and to protect participants in the transfer from being held in violation of the restraining notice. The order did not remove the victims’ legal claims; if the court later rules for the plaintiffs, Aave could be required to return the funds.

Arbitrum delegates previously recorded strong support in an off-chain Snapshot vote for routing the frozen Ether to Aave as part of a recovery plan related to the April 18 Kelp DAO exploit. Any actual movement of the Ether still requires a separate, binding onchain governance vote by Arbitrum.

Aave filed an emergency motion asking the court to lift the restraining notice after Gerstein Harrow LLP served the notice. The law firm represents families holding about $877 million in unpaid terrorism judgments against North Korea and alleges the stolen funds belong to its clients, asserting North Korean-linked hackers carried out the theft.

In court filings, Aave argued that stolen funds do not confer lawful ownership and questioned the attribution to North Korea. Aave also warned that a sustained freeze could hinder future recovery efforts by decentralized finance projects and create legal uncertainty for post-hack remediation.

Court filings say the Kelp DAO exploit released 116,500 rsETH on Ethereum without a corresponding burn on the originating side. The filings show 40,373 rsETH remaining in an adapter contract against confirmed backing for 152,577 rsETH, leaving a gap of roughly 76,127 rsETH, valued at about $174.5 million at current prices. Supporters of using the frozen Ether note that the roughly 30,765 ETH under restraint represents a significant portion of the shortfall.

Gerstein Harrow has pursued similar claims in other cases, including a January suit targeting a privacy protocol alleged to have laundered proceeds from prior attacks attributed to North Korea. The current litigation is another attempt to attach crypto assets to satisfy terrorism judgments.

The judge’s modification allows the governance process to proceed but keeps the legal dispute alive. Any transfer of the Ether will depend on the outcome of Arbitrum’s binding onchain vote and further rulings in the New York litigation.