Gustl Mollath, 56, is to immediately be released from the psychiatric institution in Bayreuth, the Nuremberg higher regional court ruled on Tuesday.
Mollath was put on trial in 2006 for attacking his wife three years after he had accused her and other employees at the HypoVereinsbank (HVB) of illegally funnelling clients' money into bank accounts in Switzerland.
To bolster his claims, he offered up a folder full of documents, yet the case was never investigated.
Last November it emerged that an audit conducted by HypoVereinsbank in 2003 suggests prosecutors had good cause to doubt the credibility of Mollath's wife, suggesting a failure of justice in the case.
Although acquitted of the physical attack claims, Mollath was sentenced to compulsory psychiatric care, after an evaluation found that he had developed a "paranoid system of thought."
Bavarian Justice Minister Beate Merk, who has in the past called Mollath dangerous and defended the decision not to pursue corruption allegations he made, said on Tuesday that she was satisfied with decision to release him, adding that she had aimed to reopen the case.
“The judiciary now has the opportunity to clarify in a further public lawsuit whether or not it is right to detain Mr Mollath – and so address the doubts which many people have about this decision,” said Minister Merk.