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The Report a Player menu is a feature that is used to report penguins that have broken the Club Penguin's rules.
The choices on the menu include bad language, being rude or mean, lying, cheating, having a bad penguin name or asking for Personal Information.
The reports are reviewed by moderators, that then ban the reported player if they broke the rules, or the report sender, in case they had sent a false report.
Many penguins do not care about being reported, as usually when someone is reported they don't get banned.