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Your wife can sue the university for breach of contract and fraud (I know you paid, but your wife was the student), you can use small claims court for this suit (likely odds are that they will "default" on the lawsuit - particularly if one of their principals is in jail).
The value of having the judgment against them is that your wife can then show this to the other schools where the issue is to help prove the veracity of her claims that she has nothing to do with the false diplomas being presented and ask whatever schools or institutions that are affected to disregard them. (I cannot promise an outcome, and she is probably going to be best served by contacting these institutions directly to see how to best resolve this issue to their satisfaction).
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WHat have you done so far and what is your objective?