It's the government trying to enforce their opinion of who should own those Bitcoins, thereby taking power away from the owner that the network has decided on, which would be "whoever has the cryptographic keys".
I really don't understand these arguments.
The law still applies whether or not you use cryptocurrency. Using cryptocurrency doesn't free someone from the consequences of their actions.
Illegal acts are still illegal acts.
What if they acquired the Bitcoin without using illegal means
Probably not possible in this case, but in DeFi where everything is ruled by smart contracts, what would make executing behavior allowed by those contracts illegal.