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It's probably just a glitch. You might be able to sue for slander at the Town Hall.
I thought it was a glitch, but what would happen if it happened in a challenge? I used cheats to take care of it.
I prefer to pay off the paparazzi because suing takes too much time and if you lose you have to keep doing it. You can also try and deflect the rumor onto someone else. However, the deflection doesn't always work and you can make enemies.
As I remember, there's an option at the business tower for deflecting a scandal and paying them off.