Garnett Cleared Aave's $71M Recovery Vote Under Federal Restraining Notice

What Happened

On Friday, May 8, 2026, Judge Margaret M. Garnett of the US District Court for the Southern District of New York issued a two-page order resolving the immediate legal standoff over 30,765 ETH frozen on Arbitrum since April 21. The ETH, worth approximately $71 million, had been recovered by Arbitrum's Security Council after the April 18 Kelp DAO bridge exploit and was being held pending the Aave-led DeFi United recovery plan.

On May 1, Gerstein Harrow LLP filed a restraining notice on behalf of terrorism creditors holding $877 million in unpaid FSIA judgments against North Korea, asserting that the attacker was a Lazarus Group operator and the ETH was therefore DPRK property seizable to satisfy those judgments.

The May 4 Aave emergency motion and May 8 ruling are the direct continuation of the legal sequence this publication covered on May 3 and May 5. In short: plaintiffs filed a restraining notice (May 1), Aave countered with a 29-page emergency motion demanding vacatur (May 4), and Judge Garnett issued a compromise order rather than a decision on the merits (May 8).

The order does not vacate the restraining notice. It creates a conditional path for Aave to proceed with the governance recovery vote without the participating parties being in contempt, while keeping the underlying terrorism-seizure theory alive.

The court did not rule on who owns the ETH. It ruled that if Aave moves it, Aave is bound by what happens next. That distinction will matter more than the vote.

The Compromise's Legal Architecture

Judge Garnett's order is structured as a two-part deal. Part one: the court will not treat any party that initiates or participates in the on-chain governance transfer as in violation of the restraining notice, provided Part two is met. Part two: Aave must agree to be directly bound by the restraining notice itself as a condition of the transfer proceeding.

The practical effect is a transfer of jurisdictional anchor. Before the order, the restraining notice bound Arbitrum DAO, which was served as an alleged judgment-debtor agent. After the order, if the vote passes and the ETH moves, the restraining notice binds Aave's Protocol governance structure directly.

The terrorism creditors' legal claims against the ETH do not extinguish when the transfer occurs. They follow the asset into whatever multi-party recovery contract receives it. The federal court retains jurisdiction over the underlying claim regardless of which on-chain address holds the funds.

This is not a typical DeFi governance outcome. Governance votes normally execute permissionlessly with no external legal conditions attached. The Garnett order makes the Aave vote a conditional legal instrument: it can proceed, but the resulting transfer carries federal court supervision as a rider. Update, May 12: Aave launched the vote.

The Legal Question That Remains Open

The merits question Judge Garnett did not answer is whether on-chain attribution of the April 18 exploit to a Lazarus Group operator is legally sufficient to make the recovered ETH seizable as DPRK property under the FSIA terrorism exception. Plaintiffs' theory requires several steps: that the April 18 attacker was a Lazarus operator (on-chain attribution from blockchain analytics firms), that Lazarus Group qualifies as an instrumentality of the DPRK (established by prior OFAC designations), that the attacker's property is therefore the DPRK's property for FSIA purposes, and that creditors with terrorism judgments against the DPRK can satisfy those judgments from the attacker's property even after it was recovered from the attacker's control.

Aave's May 4 motion contested all of these steps and added a structural challenge: a thief does not gain title to stolen property by taking it, so there is no 'DPRK property' to seize, only stolen property belonging to the exploit victims. This question will be litigated in whatever proceeding follows the governance vote. The governance vote settles only the immediate custodial question, not the ownership question.

What This Means for You

If you hold self-custodied assets and follow this case because of what it implies about DeFi legal exposure, the May 8 order establishes a mechanism worth understanding: a US federal court can extend its restraining-notice jurisdiction to a DeFi protocol's governance layer as a condition of permitting an on-chain recovery.

Aave did not lose the governance vote. It kept the right to proceed. But it accepted federal court jurisdiction over its Protocol treasury in exchange.

The precedent is not DeFi-specific. It is a federal-court tool: identify a US-nexus entity (Aave LLC, in this case) willing to accept jurisdictional conditions, attach those conditions to the on-chain action, and retain supervision over the resulting asset position. The court did not find an attachment point.

Aave consented to become one in exchange for the right to move the funds. That is the facet worth holding onto: jurisdiction here was not discovered, it was negotiated, and a protocol can bargain its own treasury into a court's reach. A restraining notice has no party to bind unless a party agrees to be bound.

Hardware wallet holders who were not counterparties to the Kelp DAO bridge contract have no party to volunteer and no exposure here.

If you had rsETH or assets in the Kelp DAO bridge at the time of the April 18 exploit, watch the governance vote outcome and the subsequent distribution timeline. The Garnett order clears the procedural path. It does not guarantee the distribution will complete before further legal action.

What to Watch

Update, May 12: the Aave binding governance vote launched. Watch for the final vote result and any legal filings from Gerstein Harrow in response to the transfer executing. The terrorism creditors' ability to pursue the ETH inside the Aave recovery contract depends on whether they can satisfy the FSIA attribution chain in further proceedings.

Watch for any new briefing schedule set by Judge Garnett following the vote. The underlying case is Henkin v. Democratic People's Republic of Korea, SDNY.

The CLARITY Act Senate markup is scheduled for May 14. The Garnett ruling is relevant context: Section 605's self-custody provision would prohibit federal agencies from restricting self-hosted wallets for lawful purposes. It would not, on its face, affect federal court jurisdiction over on-chain assets held inside a DeFi protocol's governance structure.

Courts are not agencies. The two legal tracks are parallel, not overlapping, but they share an underlying question: how far does the federal government's reach extend into programmable asset custody.

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