Should Nelson Nice send a report on a project to Jason Smart, who assisted on the project at one stage? Unless Nelson has some specific reason to doubt Jason's motives, or some general reasons for restricting access to his own work, professional courtesy and the ideal of free, unregulated exchange of information would be served by sending it.
Note that it makes no difference whether the report has been published by Nelson Nice or not, because Nice as the head of the research project holds copyright to the report. Hence any other use or publication of the material without Nice's permission, such as that by Jason in his plagiarized thesis, is illegal (and immoral).
What should Nelson Nice do when he discovers the plagiarism? First, he would have every right to get extremely angry. Jason as a former student of his has betrayed Nelson's trust in him, and has stolen his work and passed it off as his own. Jason has also betrayed and subverted the academic standards of the institution examining him for a Master's degree.
After cooling down somewhat, Nelson might reflect as follows. As well as personally being a victim of Jason's crime, he has a duty to ensure that justice is done, and that adequate steps are taken to ensure that the circumstances which made the crime possible do not occur again. The main problem was not sending Jason the report, but Jason's dishonesty coupled with inadequate supervision by his degree committee at his new institution. Nelson must effectively communicate all of this to the appropriate persons or institutions.
Next it is time for controlled paranoia to take over. Nelson is entering the crazy, upside-down world of 'whistle-blowing', in which honest attempts to reveal wrongdoing can all too easily end in failure or even personal disaster for the initiator. The unpleasant truth is that those corrupt enough to plagiarize, or falsify scientific reports, etc., are also corrupt (and clever) enough to prepare elaborate fall-back positions if their deceitful activities should ever be discovered.
For example, Jason may have kept voluminous records of his own and other student's contributions to the original project. Then, if ever challenged on his thesis, he would claim that after all it was he, and not Nelson, who had done the work on which the report was based. If for any reason Nelson no longer has full records of the project, Jason's ploy could well succeed.
Even if Jason has no such fall-back, he may well find invaluable allies in the officers and institutions of his new university. In the face of claims by outsiders of gross academic malpractice or negligence, those involved are quite likely to 'close ranks' and attempt to cover-up the problem, rather than undergo searching and painful investigation of what went wrong in the case. A Department whose graduate program might be seriously compromised by publicity about poor-quality advising of students is unlikely to be impartial in judging claims of plagiarism by its students.
So overall, Nelson Nice needs to act both cautiously and decisively, to both protect his own interests and to forestall attempts by others to 'cover-up' the problem. As for the future, Nelson would be wise to include warnings about the evils of plagiarism and falsification of evidence in his graduate courses.