One of my student researchers is likely falsifying some results/data. What are the consequences?
You have suspicions, but the evidence, as you sketch it here, is circumstantial. You need hard proof. Then you can (and must) act. 

Falsifying data is a capital crime in academia. It wastes time, possibly years of other people's work. Don't let it get through. This person, if they indeed falsified data and would come through with this, will taint anybody and anything they had to do with - you, your group, your department, your university. Their results will be worthless, and so will be the degree you bestow on them.

You would feel sorry for that person if expulsed; but how sorry would you feel for a person who for 2 years will try to reproduce this grad student's results and fail for no fault of their own? How about their life and career? An honest mistake is one thing, but faking data? You are feeling sorry for the wrong person here; you'll spare the guilty and will let the innocent being impaled? A grad student is sufficiently mature to know better than to produce "synthetic" data.

How about the person abetting such a fabrication? Frankly, if caught, depending on the power structure that person may get away with a milder penalty "for not knowing what was going on", but in principle they should get the same, if not a harsher penalty, because they certainly cannot claim they didn't know that this is wrong; and they know the repercussions.

How common is it? Hard to say, but there were a number of large scandals (Jan Hendrik Schoen comes to mind), there is probably a halo of minor such attempts. From my own anecdotal stock: I once heard the conspiracy theory that spectroscopists would intentionally introduce "innocent" wrong factors into published formulas that could be interpreted as honest mistakes to prevent competitors from progressing. I didn't believe it, however, once I had to use such a formula from a paper, and to be satisfied I rederived it and some of its "brothers" myself in a tortuous process taking several weeks; lo and behold: I found that one of them had an integer factor wrong. It goes without saying that I have no real reason to assume it was intentional, but the conspiracy theory still lodges in the back of the mind.

Bottom line: if he really fakes data, letting this happen is not an option; but the evidence must be carefully and (important for fairness to the accused) confidentially vetted to establish whether this is indeed the case.