US law firm blocks crypto transfer as Gerstein Harrow restrains Ether assets linked to Kelp exploit in Arbitrum DAO court battle in New York

A fresh legal battle has erupted in the crypto world after a US law firm moved to stop the transfer of frozen Ether tied to the so-called Kelp exploit.

The case is not just about hacked funds anymore—it has evolved into a cross-border dispute involving court orders, political accusations, and competing victim claims.

At the center of it all is a push to recover hundreds of millions allegedly owed to victims linked to North Korea-related cyber activity, raising the stakes for how stolen digital assets are treated in legal systems.

Court Orders Freeze on Ethereum Held in DAO-Controlled Wallets

The legal action was filed by Gerstein Harrow LLP, whose lawyer Charlie Gerstein confirmed that a New York district court approved a restraining notice and multiple writs of execution.

These orders aim to stop the movement of frozen Ether connected to the Kelp incident.

The notice specifically targets funds currently held under the control of the Arbitrum DAO, warning that any transfer could lead to contempt of court proceedings.

In simple terms, the DAO is now legally blocked from moving assets that were already frozen after the exploit.

The $877 Million Claim Against North Korea

The law firm argues that its clients are owed more than $877 million in combined compensatory and punitive damages, along with accumulated interest.

These claims are based on earlier default judgments issued in US courts in 2010, 2015, and 2016.

According to the filing, the stolen Ether should be considered “property” linked to North Korea because the hacker group involved is allegedly connected to the state-backed Lazarus Group, often associated with major crypto cyberattacks.

That argument is controversial in crypto circles, where ownership and jurisdiction over digital assets remain legally complex and unsettled.

How the Kelp Exploit Triggered the Freeze

The dispute traces back to the Kelp DAO exploit on April 18, which reportedly resulted in losses of around $292 million.

Investigators believe the attack was carried out by TraderTraitor, a subgroup linked to North Korea’s Lazarus Group.

In response, the Arbitrum Security Council stepped in and froze approximately 30,766 ETH, worth over $73 million at the time, securing the funds in a wallet connected to the incident.

That frozen pool of assets is now the center of the legal fight.

Competing Plans for Victim Compensation

Before the legal restraining order surfaced, Aave Labs had already proposed a recovery plan.

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The idea was to unfreeze the assets and channel them into a compensation initiative called “DeFi United,” designed to reimburse victims and restore rsETH holders.

However, the law firm’s intervention complicates that process significantly.

One Arbitrum DAO participant warned that if the court-backed claim succeeds, funds intended for victims of the Kelp exploit could be redirected elsewhere—effectively shifting losses from one group of victims to another.

A Familiar Pattern of Legal Action in Crypto

This is not the first time Gerstein Harrow LLP has pursued crypto-linked recovery claims.

The firm has previously attempted to assert rights over frozen digital assets from other major hacks, including cases involving Tether-seized funds and DAO-related incidents.

On-chain investigator ZachXBT has also previously criticized similar legal approaches, suggesting that court filings have leaned heavily on public blockchain analysis during asset recovery attempts.

These disputes highlight a growing trend: traditional legal systems increasingly trying to catch up with decentralized finance losses.

Wider Context: North Korea and Crypto Cybercrime

North Korea-linked hacking groups have become a major concern in global cybersecurity discussions.

Over the years, they have been tied to numerous large-scale crypto thefts and exploit campaigns, often using sophisticated social engineering and malware tools.

Recent estimates suggest hundreds of millions in digital assets have been stolen in a short timeframe, making these actors some of the most active cybercriminal groups targeting blockchain platforms.

Impact and Consequences

The immediate impact is a delay in potential compensation for Kelp exploit victims.

Instead of a straightforward recovery process, the frozen Ether is now caught in legal proceedings that could last months or even years.

More broadly, the case raises uncomfortable questions for decentralized organizations like DAOs: whether they can truly control frozen assets when traditional courts intervene.

It also sets a precedent for external parties attempting to claim hacked crypto funds based on older legal judgments, even when victims of newer exploits are involved.

What’s Next?

The next step will likely depend on how the New York court interprets ownership rights over the frozen Ether.

If the restraining notice is upheld, the DAO may remain unable to move funds until the legal dispute is resolved.

At the same time, competing recovery proposals will continue circulating within governance forums, but their execution may be paused until legal clarity emerges.

This could become a landmark case for how courts handle blockchain-based assets tied to cybercrime claims.

Summary

A US law firm has intervened in the Kelp DAO exploit recovery process, seeking to block the transfer of $73 million in frozen Ether.

The firm argues that its clients are owed $877 million by North Korea and that the stolen crypto should be treated as recoverable property.

The move has complicated ongoing efforts to compensate victims and highlights growing tensions between legal systems and decentralized finance governance.

Bulleted Takeaways

• US law firm Gerstein Harrow LLP filed restraining notice over frozen Ether from Kelp exploit
• New York court approved order blocking Arbitrum DAO from moving funds
• Claim involves over $877 million allegedly owed by North Korea-linked entities
• Kelp DAO exploit on April 18 led to $292 million in losses
• About 30,766 ETH ($73 million) was frozen after the attack
• Aave Labs had proposed using funds to compensate victims via DeFi United
• Legal action may delay or complicate victim reimbursement process
• North Korea-linked hacking groups tied to multiple major crypto thefts
• Case highlights growing conflict between courts and decentralized governance
• Outcome could set precedent for future crypto asset recovery disputes