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UPDATE 3-Toyota to pay $1.2 billion penalty over safety issues

(Rewrites lead, adds that problems date back to 2007, detail on GM facing probe)

WASHINGTON/DETROIT, March 19 (Reuters) - Toyota Motor Corp will pay a record $1.2 billion to resolve a criminal investigation into safety issues, the largest such penalty ever levied by U.S. authorities on an auto company.

The settlement between the Justice Department and Toyota includes an admission by the auto manufacturer that it misled American consumers about two different problems that caused cars to accelerate even as drivers tried to slow them down.

The agreement comes as General Motors is also under investigation over safety defects, and top officials said the Toyota settlement could serve as a template for similar cases.

"My hope and expectation is that this resolution will serve a model for how to approach future cases involving similarly situated companies," Attorney General Eric Holder told a news conference on Wednesday, though he declined to discuss GM specifically.

The Toyota deal, which had been expected, resolves issues that have dogged the company since at least 2007 and have been linked to at least 5 deaths. The auto maker still faces hundreds of private lawsuits over the problems.

Prosecutors filed criminal charges against the company but agreed to defer and drop them if the company allows an independent monitor to review its safety practices and if it abides by the terms of the deal.

Toyota is "effectively on probation for three years," U.S. Attorney Preet Bharara, whose office conducted the investigation, said at the news conference.

"It cared more about savings than safety and more about its own brand and bottom line than the truth," Bharara said.

Toyota said it would take a $1.2 billion after-tax charge for the settlement in the fiscal year ending March 31.

"Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us," Toyota's North American legal chief Christopher Reynolds said in a statement.

'LIES REPEATEDLY TOLD'

The settlement resolves a four-year investigation by U.S. authorities, but the problems date back to at least 2007, when the National Highway Traffic Safety Administration opened an inquiry into the Lexus ES350 model after reports of unintended acceleration by the vehicle, which is made by Toyota.

The problems gained public attention in 2009, when a highway patrolman and his family were killed in a Lexus ES350 in San Diego.

A 911 emergency call made from the car recounts the family's last minutes: "We're in a Lexus ... and we're going north on 125 and our accelerator is stuck ... there's no brakes ... hold on and pray ..." The call ends with the sound of it crashing, prosecutors said.

The problem prompted Toyota to recall millions of vehicles, beginning in 2009.

But Toyota's statements about the recall misled the public because it didn't recall all the cars susceptible to the problems, caused by faulty floor mats, prosecutors said.

A Toyota engineer concluded that the top-selling Corolla was among the worst vehicles for potential floor-mat entrapment, but the model wasn't included in the recall.

The company also concealed from the public and regulators another type of unintended acceleration caused by pedals getting stuck, officials said.

The company had canceled a design change to address the issue in the wake of the San Diego accident, prosecutors said.

"Idiots! Someone will go to jail if lies are repeatedly told. I can't support this," one Toyota employee said after a meeting with regulators, according to a statement of facts filed with the settlement.

No individuals were charged as part of the settlement.

Last year, Toyota received approval on a settlement valued at $1.6 billion to resolve claims from Toyota owners that the value of their cars dropped after the problems came to light. It is also negotiating with hundreds of customers who say they have been injured.

(Reporting by David Ingram, Julia Edwards and Aruna Viswanatha in Washington and Ben Klayman in Detroit; Editing by Doina Chiacu and Bernadette Baum)

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