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The first step in this matter is the step you have already taken, making the complaint to IAD.
Next, to stop the continued harassment
and lies, you would need to file a civil suit against her for harassment and defamation
/slander/libel, and for the common law tort
of false light (which is one of the invasion of privacy torts) for making known false statements and publishing them with malice such that they cause you harm in your community. As part of the civil suit against her you would file for a temporary restraining order to prevent her from making any further comments regarding your sister or her family.
I am afraid the civil suit at this point is your only recourse to get this matter stopped. Because the false statements are not just about her, but against her children, she is going to need a local attorney to represent her and her family against the woman making the statements.
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