In a significant legal maneuver, attorneys representing victims of North Korean terrorism have redefined the nature of the April 18 hack involving the Aave platform, arguing it constitutes fraud rather than theft. This change, outlined in a 30-page court filing submitted on Tuesday, aims to secure $71 million in frozen ether linked to the incident.
The filing, presented in the Southern District of New York, challenges Aave’s efforts to lift a restraining order on the assets. The attorneys assert that the exploit was a fraudulent lending transaction rather than a straightforward theft, suggesting that U.S. law permits fraudsters to gain legal title to property obtained through deception, even if that title can later be contested.
“What actually happened is that North Korea borrowed assets from users of the ‘Aave Protocol’ and did not pay it back, and when the ‘Aave Protocol’ sought to liquidate North Korea’s collateral, the ‘Aave Protocol’ unhappily discovered that the collateral was worthless,” the filing states.
The legal dispute stems from a cross-chain bridge exploit that drained approximately $230 million from Aave, a leading decentralized lending protocol. The attack, attributed to North Korea’s Lazarus Group by forensic firms like Chainalysis and TRM Labs, involved the minting of unbacked rsETH tokens, which were then used as collateral to borrow actual ether.
Developers associated with the Arbitrum blockchain managed to intercept around $71 million before it could be withdrawn. The new filing also broadens the legal argument by referencing the Terrorism Risk Insurance Act (TRIA), a federal law enacted after 9/11 that allows victims of state-sponsored terrorism to collect judgments from U.S.-held assets belonging to the responsible nation.
If the court accepts this argument, it may diminish the relevance of Aave’s previous claims based on New York property law. Furthermore, the filing questions Aave’s legal standing to contest the asset freeze, citing its own terms of service, which state that it does not have possession or control over user assets, a fundamental principle in decentralized finance.
The attorneys also noted that the affected users might not require the frozen ether, as DeFi United, a recovery fund that includes Aave, has raised over $327 million, significantly exceeding the disputed amount.
A hearing regarding this matter is set for Wednesday, May 6, in a federal court in Manhattan.
Attorneys for North Korean terrorism victims have shifted their legal argument regarding the Aave hack from theft to fraud, aiming to secure $71 million in frozen assets. This strategy could reshape the legal landscape surrounding the case as a hearing approaches.