work woes

Things are about to get heated up at my work. We are approaching one of the busiest times of the year for us, we just had someone quit with absolutely no notice, and now we have an "ethics" issue to face. My coworker happens to have a relative that just opened the same type of business as us but one block down the street. This coworker did tell my boss before the competitor opened that it was her brother and has tried to stay out of any business that we have dealing with this competitor, so as not to appear influenced or biased by the competitor.
Well, it seems my boss never passed this information on to the powers above him. Yesterday we received a call from our regional manager, asking what the heck was going on, that he had received a call from the college that we work with that there was a conflict of interest going on at the store. My poor coworker was in tears - she had done her job, had reported to her supervisor that there was a possible conflict, but my boss chose not to do anything. Now whether or not he did this because he knew the results would be if he did report it, I don't know. I don't know what his reasoning was, since he was out yesterday, golfing. So today I get to go and find out if we lost one most loyal employees or not.