North Korean victims' lawyers have redefined their legal approach in the Kelp hack case, now claiming credit fraud and linking the stolen assets to terrorism.
Lawyers for North Korean victims recently modified their strategy regarding the Kelp hack that resulted in the freezing of 30,766 ETH by the Arbitrum team. They now argue that the incident involves not just theft but a fraudulent borrowing of ETH from Aave, using unsecured rsETH without repayment.
In a new filing, the attorneys assert that North Korea effectively borrowed from Aave users and failed to return the assets, rendering the collateral worthless when liquidation was attempted. They invoked a legal principle stating that even property obtained through fraud temporarily transfers ownership to the thief until challenged.
“In reality, North Korea borrowed assets from Aave users and did not return them. When Aave attempted to liquidate the collateral, it found that it was worthless,” the filing stated.
The lawyers also highlighted the Terrorism Risk Insurance Act, which allows for the recovery of funds linked to state-sponsored terrorism, arguing that if the stolen ETH is traced back to North Korea, it could be seized as part of terrorism-related court rulings.
Ongoing Legal Battle
Earlier in May, a New York court imposed restrictions on Arbitrum from unfreezing the funds, while the Aave team sought an emergency court order to lift the freeze, contending that the legal reasoning behind the restriction was flawed. Aave's founder, Stani Kulechov, emphasized that stolen funds rightfully belong to the users affected.
“A thief does not own what they stole. These funds belong to the users from whom they were taken, and no one else,” Kulechov stated.
The plaintiffs raised questions about Aave's legitimacy in contesting the freeze, citing terms that suggest the platform holds control over client assets, potentially implicating it in the matter. They noted that the victims may not urgently require the funds, given that DeFi United has already amassed $327.95 million—significantly surpassing the amount involved.
A court hearing is scheduled for May 6 in Manhattan to address the ongoing situation.
Disputes Regarding Kelp's Security
Following the April hack, which Kelp developers attributed to vulnerabilities in LayerZero's infrastructure, Kelp plans to transition its cross-chain operations to Chainlink.
“After the recent LayerZero exploit, we are taking steps to ensure rsETH is fully secure, which is why we are migrating to @chainlink CCIP,” Kelp stated.
The dispute primarily revolves around a specific configuration in cross-chain messaging, with Kelp blaming LayerZero for approving a risky setup without sufficient warnings. Conversely, LayerZero claims the issues stemmed from Kelp's configuration choices rather than its infrastructure's integrity and has since contributed 10,000 ETH to DeFi United, following the incident.
