Judge Allows 30,766 ETH Transfer to Aave, Creditors Retain Claim

A federal judge in Manhattan on Friday modified a restraining notice to allow 30,766 ETH, roughly $71 million, to move from Arbitrum to a digital-assets wallet controlled by Aave while preserving ongoing legal claims on the funds. The restraining notice had frozen the ether on Arbitrum since May 1. The two-page order says any party that initiates, votes on, or participates in the on-chain transfer will not be in violation of the restraining notice.

Arbitrum delegates approved the governance proposal to release the funds on Thursday. The vote recorded 182.2 million ARB tokens in favor, representing about 91% of voting power for the measure. The order enables the on-chain process to proceed in line with the approved vote.

Aave filed an emergency motion this week through Morrison Cohen LLP seeking either to vacate the restraining notice or to require plaintiffs to post a bond of at least $300 million. U.S. District Judge Margaret Garnett rejected those specific requests and instead allowed the transfer while keeping the plaintiffs’ claims intact. Under the order, Aave LLC agreed to be treated as if it had been directly served with the restraining notice, meaning the ether could be turned over if the court later rules for the plaintiffs.

The plaintiffs are terrorism judgment creditors represented by Gerstein Harrow LLP. They seek to attach the assets under the Foreign Sovereign Immunities Act and the Terrorism Risk Insurance Act, and their filings identify the Lazarus Group and APT-38 as instruments of the Democratic People’s Republic of Korea. The complaints link the Kelp DAO bridge breach to the North Korean hacking collective and trace the frozen funds from Arbitrum to Aave, asking the court to determine whether the ETH is DPRK property subject to attachment.

The plaintiffs cite three underlying judgments: Kim v. DPRK (about $330 million), Kaplan v. DPRK (about $169 million), and Calderon-Cardona v. DPRK ($378 million). Those judgments total more than $877 million before post-judgment interest. The plaintiffs have pursued similar attachment efforts against other decentralized finance protocols.

The 30,766 ETH would be the largest single contribution to DeFi United, a cross-protocol recovery effort that has raised over $320 million. Other major contributions to the recovery pool include 30,000 ETH from ConsenSys and Joseph Lubin and a 30,000 ETH loan from Mantle. Aave also liquidated the attacker’s remaining rsETH positions earlier this week to help restore rsETH’s backing.

Aave founder Stani Kulechov wrote that the funds belong to affected users and were stolen from Aave users. The judge’s order makes clear that participants in the on-chain transfer will not be held to violate the restraining notice, but the order leaves the underlying legal questions open: Aave must comply with the restraining notice until it is vacated, modified, or expires.

Judge Garnett reserved decision on remaining matters and has not set a hearing to determine who has the superior legal claim to the frozen ETH. For now, the modified restraining notice allows the on-chain recovery process to proceed while preserving the creditors’ right to pursue attachment in court.