The firm’s Pulse technology began life as a tool to help parents monitor what their children were saying and who they were talking to on the internet but it went on to be commercialised and data was offered to marketers wanting to know what kids said about brands.

Privacy group the Electronic Privacy Information Centre lodged a complaint with the Federal Trade Commission last September and the New York attorney general started an inquiry the following month.

Echometrix has agreed to pay $100,000 to the State of New York to settle the investigation. The company said that the Pulse technology was taken off the market in the fourth quarter of last year after making less than $1,000.

In its statement, Echometrix said it was “pleased to have settled this matter in a cooperative and amicable manner” and that a privacy specialist had been appointed to the firm’s board as “an assurance of our commitment to privacy”.

Cuomo said: “Echometrix sells software that protects children by gathering information for parents about what their kids are doing online, but at the same time it was marketing its data to outside companies without its customers’ knowledge.

“This settlement prevents Echometrix from using the guise of children’s safety to undermine children’s privacy. As my office works to ensure that the internet is a safe place for children, we encourage all parents and guardians to maintain an active interest in what their children are doing online.”