Wow. It's hard to say what I'd do, since I don't know what kind of boss-lady we're talking about (well, the one data point I have is not good). I mean, you're the student's advisor, she's her professor... seems legit to me to be able to ask, "Um, want to let me in on what's going on here?"

Honestly, that would bum me out, that my dept chair could do that to a student and not think twice about it.