CASE STUDY | How Recovered Funds from this DeFi Exploit Could Cover Compensation for Non-Crypto Claims

A lawyer representing victims of North Korean terrorism stretching back decades has moved to block the transfer of tens of millions of dollars in cryptocurrency held by the Arbitrum DAO escalating a legal clash over who is entitled to frozen digital assets.

The attorney issued a restraining notice under New York law seeking to prevent the movement of roughly 30,000 ether that had been frozen following a recent exploit on the Arbitrum network (the largest DeFi hack of 2026 so far), according to reports and court-related disclosures.

The legal tool being used is CPLR §5222(b), a New York enforcement mechanism that allows creditors to freeze assets by serving a restraining notice, without first obtaining a new court order, though the target may challenge it afterward.

Once served, the recipient is prohibited from moving the assets for up to a year or until the judgment is resolved. Ignoring the notice can result in contempt of court, the same category of offense applied when someone defies a judge’s order.

The funds, worth about $70 million, were initially secured by Arbitrum’s Security Council after a hack targeting the Kelp DAO protocol with the intention of eventually compensating affected users.

However, the lawyer argues the assets may be subject to seizure to satisfy longstanding U.S. court judgments against North Korea tied to past state-sponsored attacks which collectively amount to hundreds of millions of dollars.

These filings include:

•  The 1972 Lod Airport massacre in Israel
• The 2000 abduction and killing of Reverend Kim Dong Shik
• The 2006 Israel-Hezbollah war

The plaintiffs of the above cases all won their cases but North Korea never paid with sovereign assets impossible to seize and families having spent years searching for any North Korean property to legally collect against to justify the judgements.

The legal action complicates Arbitrum’s recovery plans as multiple parties now claim rights to the same pool of frozen funds. Victims of the recent exploit had expected reimbursement through a proposed recovery initiative but the restraining notice could delay or derail those efforts.

If the court accepts the lawyer’s framing, the families of the above judgements would have senior legal claim ahead of rsETH depositors.

The case highlights growing tensions between decentralized finance governance and traditional legal enforcement particularly as courts increasingly grapple with how to treat crypto assets linked to sanctioned states or illicit activity.

North Korea-linked hacking groups have been blamed for a significant share of crypto thefts in recent years adding further scrutiny to cases involving frozen funds tied to suspected state actors.

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