ALLEGED mafia don Rocco Arico is back on the streets after being granted bail by a magistrate.

The alleged gangster had been behind bars since being charged in March with blackmail, extortion, drug, firearm and violence offences.

The charges relate to a terrifying campaign of alleged assaults, vandalism and fire bombings against a criminal known only as Witness A, who police alleged owed Arico money and was once his close friend.

Magistrate Jelena Popovic initially refused Arico bail following a hearing on March 19 amid concerns he was allegedly found with a gun and cash.

But today she cut him loose after being presented with additional information that satisfied her Arico was no longer an unacceptable risk to the community.

The court heard Arico will have a $300,000 surety hanging over his head, must report to police daily and remain at home between 9pm and 6am.

He has also surrendered his passport.

At his bail hearing in March, the court heard former bikie enforcer Toby Mitchell was involved in a dispute with Arico less than a year before he was shot.

Detective Sen-Constable Liam O’Connor told the court Arico and Witness A fell out over a 2010 drug deal rip-off in which they lost a kilogram of cocaine worth $350,000.

After the drugs were stolen, police allege Arico forced witness A to repay the $350,000 through instalments and by working as a drug courier.

He also asked Witness A to kill the drug thief, although he declined, and the man - believed to Mitchell - was eventually shot by another criminal.

But defence barrister Con Heliotis QC said Witness A borrowed the money from Arico in late 2010 to pay back Toby Mitchell, who he described as a “well known member of the community”.

Mitchell was critically wounded 11 months later when he was shot by an unknown assailant in Brunswick.

But police allege the drug rip-off caused Arico — who detests bikies — embarrassment and he wanted the money repaid.

Police allege Witness A fell $50,000 short on paying and was subjected to a terrifying campaign of assault, vandalism and firebombing of his house.

On one occasion, the house was firebombed and a pot plant thrown through a window while children were in a front room.

Witness A’s home and car were also defaced with graffiti that said “Pay Your Bills”.

Police say Witness A was eventually forced by Arico to sell his home through an associate at Raine and Horne real estate who was named in court.

Police also allege Arico forced up the price with false bids on Witness A’s home when it was sold at auction.

Arico also allegedly organised a builder to create a false debt against the house by drawing up contracts for a false renovation.

Sen-Constable O’Connor said Arico was a well-known associate of criminals including Dino Dibra and Carl Williams, both victims of Melbourne’s underworld war.

Mr Heliotis said Witness A owed money to other people who could have been behind the harassment.

“He owed a lot of people money and he lived in a world where owing people money can be a dangerous thing,” Mr Heliotis said.

Mr Heliotis said Arico had built up a property empire mortgaging assets belonging to his parents.

Much of Arico’s empire has since been frozen by authorities, the court heard.

Mr Heliotis said Arico wanted to be bailed so he could care for his sick wife and two-year-old daughter.

In releasing Arico, Ms Popovic said she was satisfied new circumstances existed that limited Arico’s risk.

The court heard doctors had confirmed Arico’s wife was gravely ill and expecting a kidney transplant.

Police have also taken a statement from a man who claimed to own a gun and drugs found in a Vespa motorcycle parked outside Arico’s apartment.

The man’s DNA was subsequently confirmed to be present on the gun.

The court heard Arico had supplied tax returns to the court supporting claims he was a legitimate businessman.

Ms Popovic said she did not accept allegations made by Sen-Constable O’Connor yesterday that $24,000 in cash found with Arico was the proceeds of extortion against Witness A.

She told the court Arico had spent much of his time behind bars under “onerous and harsh conditions” in 23-hour lock-down and that returning to jail would be a major disincentive to the alleged gangster.

Ms Popovic also took into account the lengthy delay in the matter going to trial.

“It would be unjust to keep him in custody any longer,” she said.

Arico will return to court on June 11.