I think you should help him. IMHO, it is ethical to stand up for a colleague in his first year in the job if 1) he was mistreated, 2) he did nothing that he should not do, 3) he was referred by you and you are senior to him. If you don't stand up for him, you will lose some respect from your colleagues if they heard of it. This is not good for your career in a small company where everybody knows each other. (It could be a different story if it is a big company.) People wounldn't talk about it. If you lead or want to lead in the future, though, you have to work much harder to earn the respect back first.
If you don't consider political correctness for a moment, we have to say most people do racial profiling, consciously or subconciously. If your 师弟 is also Chinese, your keeping silent would do nothing good for your career there. It is much hard to advance in an environemnt if your ethnic group is consciously or subconsciously discriminated against.
As for how to help, you must act professionally. You mentioned your company is in Silicon Valley, your 师弟 is a good engineer, and it is really hard to hire a good engineer. I personally know how hard it is. So when you have chance (you can always create chances) to talk to people who can exert power to that manager, you can "accidentally" mention that your 师弟 is confused and troubled by this working-from-home drama, and how hard it is to recruit him to join your company. A smart person will immediately know what you mean and know the potential harm it could do. As for the law, I have never heard of it. I doubt it exists since it sounds discriminative. Even if such laws exist, you know no companies in Silicon Valley follow it.
You do need to know the background and influence of that manager, and compare them to your influence in the company. That will decide how you are going to "accidentally" bring up your case and how far you want to push it. But I am sure of one thing. That manager will not go very far in his path. His act is simply stupid. In start-ups in Silicon Valley, even if you are CEO's old friend, the CEO would let you go someday if your acts do harm to his start-up or even slow down its growth, unless the CEO himself is stupid. In that case, update your resume and start interviewing as soon as you can.
