"Ratting someone out" to me means taking it upon yourself to squeal to the authorities for no other reason but because you can.
This is the way I see it: A flight instructor's job is to give training. His job is not to act as the FAA junior deputy infraction whistle blower. As long as the CFI covers all the bases and does all he can do to warn the student of the consequences, then he has sufficiently covered his buttocks. Physically taking the student's certificates away from him is purely a dick move. If anything, it acknowledges that the CFI was careless in signing him off in the first place.
It really annoys me when people take it upon themselves to enforce something that they have no business enforcing. There was a thread here a few months ago where many people were saying how if they ever found themselves in an interviewer position, they would never ever hire an ex-con because "they deserve to not get hired because they messed up and it's my job to make sure they realize that actions have consequences". So instead of being just a job interviewer, they are job interviewers, as well as judge and jury. That kind of crap bothers me.
Look, if a student acts illegally, the instructor can't in any way be held liable. At least in the eyes of the FAA. And if it's the civil courts you're worried about, scratching your name off the student's certificate isn't going to change anything.
If someone can supply evidence of the FAA going after an instructor because the student