Underwood said her office had conducted tests which found that "Cra-Z-Jewelz" jewelry-making kits had lead levels up to 10 times higher than the federal limit. She said those findings had already spurred a nationwide recall of the toys.
The contaminated products were imported by LaRose and sold by Target and Walmart.
Underwood alleges the companies violated multiple state laws between 2015 and 2016. Her office is pursuing civil penalties as well as the implementation of measures to prevent future sales of lead-contaminated toys.
"No parent should have to worry that their child's toy may be toxic," Underwood said in a statement.
A spokeswoman for Target said the company is committed to providing "high quality and safe products." The retailer also said it pulled the product "immediately and voluntarily" in 2016 when it was notified about the allegations. Target directed further questions to LaRose.
Walmart said it takes customer safety seriously and removed the products from its shelves nearly three years ago when LaRose notified the company about the recall.
"We've discussed this matter with the New York Attorney General's office and will address the allegations and demands with the court," a spokesman for Walmart said in a statement.