Aqua-Leisure Industries has agreed to pay $650,000 to settle a dispute with the U.S. Consumer Product Safety Commission. The agency  accused the Avon, MA company of knowingly failing to report a defect in its inflatable baby boats.

The leg strap in the seat of baby boats made in China and sold by the Aqua-Leisure from August 2002 to July 2008 can tear, causing children to unexpectedly fall into or under the water, posing a risk of drowning, the commission said in a statement released Wednesday.

In 2001, Aqua-Leisure and the commission recalled 90,000 “Sun Smart” inflatable baby boats after receiving 12 reports of the seats tearing and causing children to fall into the water. No injuries were reported.

After that recall, Aqua-Leisure continued to make different versions of the baby boats, which also became the subject of consumer complaints, the commission said. Between July 2003 and July 2006, Aqua-Leisure became aware of 17 incidents involving inflatable baby boats sold after the 2001 recall in which the seats “fell out,” “ripped,” “failed,” “tore,” “split” or “separated,” including four incidents in which a baby boat seat ripped, causing children to fall into the water unexpectedly, the commission reported on Wednesday.

By late 2008, Aqua-Leisure was aware of at least 24 consumer complaints about its inflatable baby boats since the 2001 recall but did not adequately inform the commission until May 2009, the commission said.

The company and the commission recalled about 4 million baby boats – each one sold for between $8 and $15 – during the summer of 2009.

Federal law requires manufacturers, distributors, and retailers to report to the Consumer Product Safety Commission within 24 hours after obtaining information reasonably supporting the conclusion that a product contains a defect which could create a substantial product hazard, creates an unreasonable risk of serious injury or death, or fails to comply with any consumer product safety rule or any other rule, regulation, standard, or ban enforced by the commission, it said in a statement released Wednesday.

In agreeing to the settlement, Aqua-Leisure denied commission staff allegations that its inflatable baby boats could create an unreasonable risk of serious injury or death, or contained a defect that could create a substantial product hazard, or that Aqua-Leisure violated the reporting requirements of the Consumer Product Safety Act, the commission said.