Melissa Petro could also lose her tenure if Bloomberg has anything to do with the issue, The New York Post reported.
"What our legal rights are, whether she broke the law in terms of applying and getting tenure or whether the system just broke down, that's being investigated," Bloomberg said in the Post report.
Petro was removed from the classroom at PS 70, and given an administrative job while officials decide what, if anything will be done, the report said.
"We decided not to have this woman in front of a class," Bloomberg said.
The 30-year-old art and writing teacher's past came to light when she allegedly said on the Internet she was a prostitute, the newspaper said.
The woman reportedly told her online followers that a "female administrator" at her school knew about her past, and told said her career could be in jeopardy if she didn't use a pseudonym.
Teachers who are given tenure by their principals are almost guaranteed a lifetime job, the report said.
Petro did not comment in the report.