The Federal Trade Commission has reached a $3 million settlement with Disney-owned Playdom, Inc., and a company executive, Howard Marks, over charges that they violated the Children’s Online Privacy Protection Act approximately 1.2 million times.

The defendants operated 20 online, virtual worlds where users can play games, participate in online forums, and engage in other activities. But according to the Commission, the defendants illegally collected and disclosed the personal information of children under the age of 13.

According to the FTC, approximately 403,000 children registered on the defendants’ general-audience sites – like My Diva Doll and Ninja Clans – between 2006 and 2010, and an additional 821,000 registered on Pony Stars, a Web site specifically directed at children. (The Walt Disney Company acquired Playdom in August 2010.)

The defendants failed to notify parents and obtain parental consent prior to collecting, using, or disclosing the names, e-mail addresses, and ages of children under the age of 13, as required by the FTC’s COPPA Rule, and the sites’ profile pages and online community forums allowed children to publicly post their personal information, including full names, instant messenger IDs, and location, according to the FTC complaint.

In addition, Playdom violated the FTC Act because its privacy policy misrepresented that the company would not allow children under 13 to post their personal information online, the Commission alleged.

The defendants agreed to pay a $3 million civil penalty and are barred from future misrepresentations about their information collection practices regarding children and COPPA violations. The consent decree also orders that any personal information collected in violation of the law be destroyed within 10 days and that the defendants are subject to compliance monitoring for four years.

To read the complaint in U.S. v. Playdom, Inc., click here.

To read the consent decree, click here.

Why it matters: “Let’s be clear: Whether you are a virtual world, a social network, or any other interactive site that appeals to kids, you owe it to parents and their children to provide proper notice and get proper consent,” Jon Leibowitz, Chairman of the Federal Trade Commission, said in a statement about the settlement. “It’s the law, it’s the right thing to do, and, as today’s settlement demonstrates, violating COPPA will not come cheap.” As Leibowitz’s comment and the size of the fine – the largest civil penalty given by the FTC under COPPA – make clear, companies that deal with children’s information should ensure they are following all rules and requirements, or face a steep penalty.