Creditors of North Korea seek $71M in frozen Arbitrum ether

Plaintiffs holding nearly $877 million in unpaid U.S. court judgments against North Korea filed to seize about 30,766 ether, roughly $71 million, that were frozen on the Arbitrum network after the Kelp DAO exploit. A U.S. federal court in New York authorized a restraining notice on April 30 and the notice was served through Arbitrum’s governance forum. The order blocks any transfer of the frozen funds while litigation proceeds.

The creditors are seeking enforcement of three separate terrorism-related U.S. judgments tied to the killing of Reverend Kim Dong-shik, alleged support for Hezbollah during the 2006 Lebanon war, and the Lod Airport massacre. Those judgments together exceed $877 million before interest. The plaintiffs are not connected to the Kelp DAO breach.

Blockchain infrastructure firm LayerZero linked the Kelp DAO breach to the Lazarus Group, a hacking unit long associated with North Korea. LayerZero’s incident analysis said, “This means no single DVN should represent a unilateral point of trust or failure,” and added, “This incident was isolated to KelpDAO’s rsETH configuration.” U.S. authorities have tied DPRK-linked actors to international cryptocurrency thefts.

Arbitrum’s Security Council froze the ether after tracing the stolen funds to addresses associated with the attacker. Arbitrum governance is considering a proposal to transfer the frozen ether to a recovery initiative backed by Aave Labs, Kelp DAO, LayerZero, EtherFi and Compound. The proposal aims to compensate users affected by the exploit and to stabilize the Kelp DAO ecosystem. The governance vote is scheduled to close on May 7, but the restraining notice bars any transfer while the court matter is pending.

At issue in the litigation is whether crypto assets that on-chain analysis links to a sanctioned state can be seized to satisfy terrorism-related judgments. The restraining notice remains in effect as the parties proceed through the court system.