A federal judge in Manhattan has cleared the way for Aave’s recovery efforts following last month’s North Korea-related rsETH breach, allowing $71 million worth of frozen ether to be transferred out of Arbitrum while preserving North Korean terrorism victims’ legal claims to the funds.
In a two-page order issued late Friday US time, Judge Margaret Garnett modified a previous restriction notice issued on the Arbitrum DAO to allow an on-chain governance vote to move pegged ETH to a wallet controlled by Aave LLC.
The order also insulates participants from liability under the notice, noting that anyone who initiates, votes for or participates in transfers will not be in violation of the freeze.
Judge Garnett’s ruling follows an earlier off-chain snapshot temperature check, in which arbitration representatives overwhelmingly expressed support for the return of frozen ETH as part of Aave’s wider recovery plan. However, any actual transfer will still require a separate binding on-chain governance vote.
The ruling resolves an immediate standoff that had threatened coordinated DeFi recovery efforts after attorney Charles Gerstein, representing a family holding an estimated $877 million in unpaid terrorism judgments against North Korea, argued that frozen ETH could be seized due to a breach widely blamed on the Pyongyang-backed Lazarus Group.
Beyond arbitration disputes
Gerstein’s actions against Arbitrum fit within a broader legal strategy to track down North Korea-related assets as they appear on decentralized finance (DeFi) infrastructure.
In a separate lawsuit in January, a number of terrorism judgment creditors following Arbitrum sued the Railgun DAO, claiming that the privacy agreement allowed North Korean actors to divert 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 breach, and argued that the agreement should have frozen the assets rather than allowing them to move forward.
They believe that once North Korean-controlled wallets move funds through the protocol, these assets become potential collection targets.
In March, they asked a Washington federal court clerk to rule against Railgun DAO because they claimed the agreement failed to respond to complaints despite being served. Their complaint also names Digital Currency Group, alleging that the cryptocurrency investment firm purchased Railgun governance tokens for $10 million in 2022, making it a participant in the DAO’s governance and economy.
In February of this year, the plaintiffs moved to obtain USDT that the U.S. government attempted to seize through a forfeiture motion.