A Virginia toy maker and his former lawyer were sentenced to prison, fined $10,000 each and ordered to pay more than $121,000 in restitution yesterday for defrauding the government in a failed effort to launch a toy factory in Grenada.

William H. Ingle, a toy shop owner, and his former lawyer and business partner, Scott M. Reed, had been praised by President Reagan for starting the first American business in Grenada after the 1983 U.S. invasion that overthrew a communist regime.

Both pleaded guilty in December to lying on an application for a $350,000 federal loan to start the factory that folded in December 1984, four months after it opened.

U.S. District Judge Robert G. Doumar in Norfolk sentenced Reed to three years in prison, fined him the maximum $10,000 and ordered him to pay $121,548 in restitution to the government and 14 investors in the toy factory.

Reed, 31, of Virginia Beach, also was fined $500, sentenced to a concurrent two-year prison term and ordered to pay $69,533 in restitution for lying to obtain money from the Naval Federal Credit Union in another loan case.

Ingle, 61, who owns Ingle's Handcrafted Wooden Toys in Norfolk's Waterside marketplace and a carpet business in Virginia Beach, was sentenced to two years in prison, fined the maximum $10,000 and ordered to pay $121,548 in restitution.