Krones AG , a German maker of packaging and bottling machines, will pay $125 million to settle a U.S. criminal probe and related civil litigation over its role in a $685 million fraud at Le-Nature's Inc, a bottled water company that went bankrupt in 2006.

In a statement, the U.S. Department of Justice said Krone's U.S. unit, Krones Inc, will pay $15 million and enter a non-prosecution agreement to resolve the criminal probe.

The Franklin, Wisconsin-based unit will also pay $110 million to enable fraud victims and Le-Nature's creditors to recover some of their losses.

Krones on Thursday denied having knowingly participated in the Le-Nature's fraud and said it had been "manipulated by Le-Nature's and subjected to fraudulent and unethical activities." It also said it had cooperated with federal prosecutors.

The Justice Department said that between 2004 and 2006, Krones cooperated with Le-Nature's and its chief executive, Gregory Podlucky, to deceive lenders into providing twice as much financing as necessary for the cost of bottling equipment.

It said Krones received the funds, kept enough to cover the equipment, and forwarded the rest - $118 million - to Le-Nature's, which had been based in Latrobe, Pennsylvania.

Prosecutors earlier accused Podlucky of running a "loan-Ponzi" scheme where he obtained new loans to repay older loans, and spent $40 million of Le-Nature's funds on precious gems and jewelry and to build a never-finished mansion.

Podlucky was sentenced in October 2011 to 20 years in prison for fraud, money laundering and tax evasion. His son Jesse and wife Karla were sentenced in May to nine years and 4-1/4 years in prison, respectively, on related money laundering charges, according to the Justice Department and court records. All have filed appeals.

Krones is based in Neutraubling, Germany.

(Reporting By Jonathan Stempel in New York; editing by John Wallace)