updated 12/15/2008 4:07:00 PM ET 2008-12-15T21:07:00

Toy maker Mattel Inc. will pay $12 million to 39 states to settle an investigation over Chinese-made lead-tainted toys shipped to the U.S. in 2007, state officials said Monday.

Mattel and its Fisher Price unit recalled more than 21 million Chinese-made toys last year, beginning in August, fearing the items were tainted with lead paint and tiny magnets that children could accidentally swallow.

All the affected toys were pulled off shelves by December 2007.

As part of the agreement, Mattel also agreed to lower the acceptable level of lead in toys shipped to the states to 90 parts per million down from 600 parts per million, which is currently the federal standard.

When new regulations go into place next year, however, the federal standard will also fall to 90 parts per million.

"We are pleased this agreement with Mattel and Fisher Price will result in much safer standards," Massachusetts Attorney General Martha Coakley said during a press conference Monday.

Massachusetts will receive $625,000 as part of the settlement. The state plans to use $500,000 of the money for a grant program funding organizations that foster awareness of the dangers of lead paint and $125,000 will cover legal costs, Coakley said.

Meanwhile, Vermont will get almost $450,000, Wisconsin will receive $234,700, New Jersey will get $259,000 and Delaware will receive $197,000.

"Mattel has demonstrated its commitment to children's safety by pledging to meet standards even more stringent than those currently required," El Segundo, California-based Mattel said in a statement. "Mattel also has taken steps that go beyond current requirements to give parents greater confidence that the Mattel toys that they buy this holiday season will be the safest ever."

California also took part in negotiations, but reached a separate agreement under its Safe Drinking Water and Toxic Enforcement Act. As part of that agreement, California said Thursday that nine toy companies, including Mattel, would pay the state $1.8 million over lead-tainted toys.

Needham & Co. analyst Sean McGowan said the settlement had been anticipated, and $12 million is probably less than the legal costs the company would have incurred if the company hadn't reached a settlement with the states.

"Anything that would put to rest this question (of toy safety) is a net positive, as long as it's not terribly crippling, and $12 million is pretty good to put to rest state-level actions," he said. However, he noted there are still class-action suits from consumers that are pending.

Mattel, which must pay the settlement by Jan. 30, saw shares fall 37 cents, or 2.5 percent, to $14.53 in midday trading.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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