Michael Catain, a jailed associate of Wayzata businessman Tom Petters, was ordered released from custody Monday by a federal judge, who ruled Catain is not a risk to flee the state before he is sentenced for his role in an alleged investment fraud and is not a danger to the community.

U.S. District Judge Paul Magnuson said Catain erred when he took $14,000 from his Excelsior car wash to pay personal and company bills without approval of the court-appointed receiver overseeing the Petters matter, but he later was able to account for nearly all the money.

"It does not appear that defendant took money properly belonging to the receiver with criminal intent or for some other nefarious purpose," Magnuson said in his order.

Catain has been in federal custody in the Sherburne County jail since the end of January, when the U.S. Attorney's office requested he be jailed for taking the car wash receipts. Magistrate Judge Franklin Noel agreed a crime had occurred and that Catain should be detained.

Catain's attorney, Michael Colich, said use of the funds had been "misinterpreted" by receiver Doug Kelley and that the expenses were largely business-related.

Colich said Catain is in poor health and will need back and hip surgery soon. Catain pleaded guilty in early October to one count of money laundering conspiracy.

Petters, who was jailed in October for his role in an alleged $3.5 billion Ponzi scheme, remains in custody.

David Phelps • 612-673-7269