"The whole thing was kind of buffoonery (by the FBI)," said Connole's attorney John Burton. Burton said that attorneys for both sides had also agreed that the FBI would send Connole a written apology but that officials at the agency were objecting to the letter.

William Cottrell, 23, an environmental activist who wrote to a newspaper claiming responsibility for the attacks and mocking authorities for arresting the wrong man, was ultimately convicted and sent to prison.

The FBI's Los Angeles bureau referred calls about the case to the US Attorney's Office in Phoenix, which handled the litigation.

Sandy Raynor, a spokeswoman for that office, confirmed the settlement. "The FBI arrested the wrong person but it was a good faith mistake and in the interest of acknowledging that mistake and working with the plaintiffs, the FBI and the US Attorney's office agreed to that settlement," she said.

The SUVs were torched, vandalized and sprayed with slogans such as "Fat, Lazy Americans" and "ELF" -- a reference to the radical environmental group Earth Liberation Front -- at four car dealerships outside Los Angeles in August of 2003, causing more than $2.5 million in damage.

Burton said the FBI quickly focused on a cooperative that Connole belonged to and decided that he resembled a suspect seen on a surveillance tape.

"So they immediately started following him around and then when they arrested him they said, 'You've got some red paint on your pants and we think it matches (the paint used in the attacks)," Burton said. "So they took his pants and flew them back to FBI headquarters for analysis, where it turned out to be catsup."

In the meantime, Burton said, Connole spent four days in jail, often chained to the floor and repeatedly urged by FBI agents to confess.

After Cottrell sent his letter to the Los Angeles Times claiming responsibility, prosecutors ordered the FBI to to pursue him as a suspect, Burton said, leading eventually to his arrest and conviction.