MIAMI -- A man charged with collecting nearly $40,000 in donations by falsely claiming on the Internet he was flying aid to Hurricane Katrina victims gave the money back and then chartered a plane to provide medical supplies, his lawyer said Tuesday.

Hurricane Katrina Image Gallery

"He refunded everybody 100 cents on the dollar," said Alvin Entin, attorney for Gary S. Kraser, during a a pretrial detention hearing. "That's not indicative of a lack of moral compass."

Federal prosecutors, however, said Kraser only took those steps after learning that the FBI was on the trail of his alleged fraud.

"The fact that he refunded the money says nothing about the fraud he committed," Assistant U.S. Attorney Joan Silverstein said.

Over Silverstein's objections, U.S. Magistrate Judge Patrick White agreed to set bail for Kraser at $125,000 after finding he is not a risk to flee or a danger to the community.

Kraser, who turned 51 Tuesday, is charged with four counts of wire fraud for allegedly setting up a Web site to solicit donations for victims of Hurricane Katrina.

The site claimed that Kraser and others were flying supplies to Katrina victims, when there were no such flights, prosecutors said.

Postings to the site described hurricane devastation in vivid detail, with Kraser claiming he had flown over rooftops with people waving for help.

He also said he had flown a 7-month-old girl who needed an organ transplant out of the area. Kraser also claimed to have "tipped wings" in greeting as he flew over Air Force One.

"That was entirely untrue," Silverstein said.

Silverstein added that Kraser has admitted fabricating the postings, which Entin did not contest. But Entin did stress the refunds to all 48 victims and provided receipts showing that Kraser had spent at least $36,000 to charter a flight full of medical supplies for the hurricane victims.

"He had no intention of stealing from anybody," Entin said.

Yet Silverstein said that Kraser had approached the Federal Emergency Management Agency about getting a reimbursement for his charter flight.

FBI agent Melissa Lawrence testified that the investigation of Kraser began Sept. 2, the same day Entin said that Kraser closed the deal on the charter flight. The refunds began on Sept. 4 and were completed by Sept. 8, Lawrence said.