A U.S. federal court in the Southern District of New York has blocked Arbitrum DAO from transferring roughly $71 million in ether that was frozen after the KelpDAO exploit on April 18, 2026. The order interrupts an on-chain recovery effort and redirects attention to a separate legal fight involving creditors with terrorism-related judgments against North Korea.
The frozen balance, about 30,766 ETH, represented roughly 24% of the $292 million taken in the exploit. Arbitrum’s Security Council and DAO community had earmarked the funds for a recovery initiative intended to compensate direct hack victims, but the court’s restraining order now prevents any transfer while competing claims are resolved.
Terrorism Judgment Creditors Seek the Frozen ETH
The motion was filed by Gerstein Harrow LLP on behalf of plaintiffs holding longstanding U.S. judgments against the Democratic People’s Republic of Korea. Their legal theory, as described in the filings cited by the court, seeks to attach the frozen ether as property in which the DPRK has an interest.
The plaintiffs combined a 2015 award of roughly $330 million with additional judgments, including Kaplan v. DPRK and Calderon-Cardona v. DPRK, to present aggregate claims exceeding $877 million before interest. Gerstein Harrow LLP argued that the seized ether was “rightfully theirs” as a route to satisfy unpaid terrorism judgments.
Arbitrum froze the 30,766 ETH after on-chain analysis linked the address holding recovered funds to activity attributed to the Lazarus Group. A DAO vote later supported moving the balance to a recovery vehicle for victims, but the SDNY order superseded that on-chain governance path by issuing garnishment and execution writs.
On-Chain Recovery Meets Traditional Enforcement
The case creates a difficult precedent for DAOs, security councils and recovery teams. A protective freeze intended to preserve stolen assets has become a legal anchor for third-party creditors seeking unrelated judgment enforcement.
For KelpDAO exploit victims, the result is delay and uncertainty. Compensation is now subject to court proceedings over whether the plaintiffs can execute against the frozen ETH, rather than the DAO’s originally supported recovery mechanism.
The operational lesson is that on-chain intervention can create off-chain legal exposure. Freezing assets may help preserve value after an exploit, but it can also place those assets within reach of traditional court remedies such as garnishment.
The dispute also highlights unresolved custody and compliance questions. Decentralized recovery mechanisms do not operate in isolation when courts assert jurisdiction over frozen crypto assets tied to alleged sanctioned or state-linked actors.
The next stage will unfold in SDNY proceedings over the plaintiffs’ right to execute on the ether. Until the court permits transfer or orders turnover, Arbitrum’s recovery plan remains blocked, and market participants will need to treat cross-border judgment enforcement as a material risk in future on-chain recovery playbooks.
