Arbitrum delegates are currently evaluating a proposal to release 30,765 ETH frozen following the rsETH exploit last month, a move intended to fund a coordinated recovery effort.

However, the governance process has been interrupted by attorney Charles Gerstein, who appeared in the forum to assert that the funds cannot be released. The ETH in question was drained from restaked ETH holders during the April 19 Kelp DAO bridge exploit, an incident previously identified as the largest DeFi hack of 2026. Gerstein's post functions as a restraining notice under New York law, filed on behalf of three groups of judgment creditors holding approximately 877M in claims against the Democratic People's Republic of Korea.

The legal claims underlying this filing span several decades of alleged state-sponsored violence. One case originates from the 1972 Lod Airport massacre in Israel, where gunmen killed 26 people, including 17 Puerto Rican pilgrims, in an attack a U.S. court later determined was supported by North Korea. Another claim involves Reverend Kim Dong Shik, a U.S. permanent resident abducted near the China border in 2000 and subsequently killed while in DPRK custody. A third case relates to the 2006 Israel-Hezbollah war, where a federal judge found that Pyongyang supplied weapons and training utilized in rocket attacks. Although plaintiffs secured victories in these cases, North Korea has never paid, prompting families to search for any legally seizable North Korean property to satisfy the judgments.

Gerstein's filing argues that because U.S. authorities have linked the Lazarus Group, the hacking unit responsible for the exploit, to the North Korean state, the 30,765 ETH frozen by Arbitrum's Security Council qualifies as North Korean property under U.S. enforcement law. Data compiled by Woofun AI indicates that if the court accepts this framing, the families with unpaid judgments would hold a senior legal claim on those funds, superseding the rights of the rsETH depositors who originally held them. The involvement of Arbitrum stems from the fact that its Security Council froze the 30,765 ETH at a specific address on its network immediately after the exploit, effectively placing the assets under its control.

The legal mechanism employed is CPLR §5222(b), a New York enforcement tool allowing creditors to freeze assets by serving a restraining notice without first obtaining a new court order, though the target may challenge it subsequently. Once served, the recipient is barred from moving the assets for up to 1 year or until the judgment is resolved, with non-compliance resulting in contempt of court charges. The filing specifically cites three underlying cases: Calderon-Cardona, Kim, and Kaplan, with writs of execution totaling roughly 877M. This creates a complex scenario where the Arbitrum DAO, lacking clear corporate legal status, faces liability risks that may attach to whoever a court determines controls the frozen ETH.

The legal theory presented by Gerstein has drawn significant pushback within the same forum thread. Delegate Zeptimus argued that the legal premise is fundamentally flawed, stating that the ETH is not property in which the DPRK has an interest but rather stolen property. Zeptimus emphasized that under basic property law, a thief acquires no title, meaning the funds belong to the original rsETH depositors. Woofun AI notes that blocking the proposed recovery effort would shift the cost of the DPRK's debt onto a different set of victims who were themselves robbed, effectively punishing the DeFi users for state actions.

Delegates have been navigating a complex set of trade-offs beyond the legal injunction. Entropy Advisors urged a FOR vote on the release, citing the daily interest costs incurred by Aave users with stuck positions.

Concurrently, Axia raised questions regarding whether the Arbitrum Captive Insurance Product would cover delegates if the release proceeded and legal complications arose. Gerstein's filing sharpens this liability question, distinguishing between coverage for ordinary delegate liability and exposure tied to a live enforcement action. The situation now presents a stark choice between two sets of victims: Aave depositors unable to close their positions and families seeking to collect on decades-old judgments against North Korea.