A federal judge in Manhattan has cleared the way for Aave’s recovery effort to move forward after last month’s North Korean rsETH exploit, allowing $71 million in frozen ether to be transferred out of Arbitrum while preserving North Korean terror victims’ legal claims to the funds.
In a two-page ruling published late Friday US time, Judge Margaret Garnett modified a restraining order previously issued on the Arbitrum DAO to allow an onchain governance vote that transfers the immobilized ETH to a wallet controlled by Aave LLC.
The order also shields participants from liability under the order, which says that anyone who initiates, votes on or participates in the transfer will not violate the freeze.
Judge Garnett’s ruling follows an earlier off-chain Snapshot temperature check where Arbitrum delegates overwhelmingly signaled support for returning the frozen ETH as part of Aave’s broader recovery plan. However, any actual transfer still requires a separate binding on-chain governance vote.
The ruling resolves an immediate standoff that had threatened to derail a coordinated DeFi recovery effort after attorney Charles Gerstein, who represents families with roughly $877 million in unpaid terrorism judgments against North Korea, argued that the frozen ETH could be seized because the exploit has been widely attributed to Pyongyang, which is backed by Lazarus Pyongyang.
In addition to the arbitration dispute
Gerstein’s move against Arbitrum fits into a broader legal strategy to pursue North Korean-linked assets when they appear on decentralized finance (DeFi) infrastructure.
In a separate lawsuit in January, many of the same terrorism judgment creditors that went after Arbitrum sued Railgun DAO, alleging that the privacy protocol allowed North Korean actors to move funds that should have been frozen and made available to creditors.
At the time, the plaintiffs alleged that North Korean hackers used Railgun to launder funds from previous cyberattacks, including the $1.5 billion Bybit exploit, and argued that the protocol should have frozen those assets instead of allowing them to move forward.
As DPRK-controlled wallets moved funds through the protocol, those assets became potential targets for collection, they argued.
In March, they asked a federal judge in Washington to enter a receivership against Railgun DAO after claiming that the protocol did not respond to the complaint despite being served. Their complaint also names Digital Currency Group, which claims that the crypto investment firm’s purchase of $10 million of Railgun governance tokens in 2022 made it a participant in the DAO’s governance and finances.
And in February, the plaintiffs moved to secure USDT, which the US government had sought to seize through a forfeiture motion.
