A new court battle is unfolding over roughly $71 million in frozen ETH tied to the Aave exploit. In a 30-page filing, attorneys for the victims argued that assets obtained through fraud can temporarily confer ownership rights on the fraudster under U.S. law, a distinction that may shape who ultimately controls the frozen ether.
Lazarus-linked exploit and the Arbitrum freeze
Chainalysis and TRM Labs traced the April attack on Aave to the North Korea-linked Lazarus Group. According to the case record, the attackers minted unauthorized rsETH tokens, posted them on Aave as false collateral, and then borrowed real ether against those deposits. Blockchain developers moved quickly, freezing about $71 million on the Arbitrum chain before the funds could be liquidated.
The legal fight now turns on more than attribution. The plaintiffs say U.S. law treats theft and fraud differently, and that distinction could matter in deciding whether the frozen ETH is controlled by the victims, the protocol side, or another claimant recognized by the court.
Plaintiffs lean on TRIA and challenge Aave’s position
The legal team also invoked the Terrorism Risk Insurance Act, or TRIA, a U.S. federal law enacted after 9/11. Under that statute, victims holding court judgments against state sponsors of terrorism may collect damages from assets within U.S. jurisdiction that are tied to those states. The plaintiffs argue that seizing the frozen ether under TRIA would be lawful.
If the court accepts that argument, Aave’s position under New York property law could weaken. The filing also questions whether Aave has standing over the assets at all. Citing Aave’s own user agreement, which says the company has no direct access to, control over, or custody of user funds, the plaintiffs contend that Aave may lack the legal authority to ask the court to release the ether.
Recovery fund already exceeds the frozen amount
Another point raised in the case is that users may not need immediate access to the frozen ETH. The DeFi United recovery fund, launched by major firms in the crypto sector including Aave, has already raised $327.95 million, more than four times the amount currently frozen.
The next major hearing is scheduled for Wednesday, May 6, in Manhattan federal court, where both sides are expected to present their arguments. The ruling could affect how courts approach DeFi-related disputes and the status of internationally linked digital assets under U.S. jurisdiction.