The first step would be for your friend to contact the owner and request a refund.  If your friend incurred additional expenses due to being unable to occupy the premises, your friend could request that the owner reimburse those, also.  However, due to some uncertainty whether there was any enforceable ban, the owner's actual liability is uncertain.  Did your friend contact the owner immediately on being told of the claim of a ban?  If so, what did the owner say?  In general, one who is turned away from rented premises should not accept such an order not to occupy it unless the owner confirms it or a valid court order is produced.

Was the manager with whom your friend spoke a property manager acting as agent for the owner, or a manager employed by the condo complex or association? 

Is the 'short term rental ban' something imposed by the city, or claimed by the condo association?

It would be rather unusual that a person could be jailed for occupying a short term rental in violation of a ban, regardless who imposed the ban.  That threat could present some interesting legal issues, but without knowing more I have no idea just where those issues might lead.

Making some huge assumptions based on the woefully incomplete facts, I suspect that the condo association prohibits short term rentals, and the manager was employed by the association.  I suspect that the association would be powerless to impose any penalty on your friend, and would not have the right to prevent your friend from occupying the premises--any action it might take to enforce the ban would need to be taken against the owner.  In this case, the owner might have no legal responsibility to refund anything to your friend because your friend may have voluntarily abandoned the rental in the face of the manager's opposition and notice, however the association might be liable to your friend.

If your friend does not get this worked out your friend should consult an attorney in the area who does landlord tenant law.  And if your friend has not already done so, it could be helpful to obtain a copy of the notice.