First of all, I understand why you might feel offended. You know your son. You trust your son.
However, I don't feel that the request is particularly unreasonable. 12 is a little young to be watching that many kids; 12 (even 10) is the early stage of puberty (I was a late bloomer, but I definitely had 'curiosity' about boys at 10). I didn't necessarily read it as YOUR CHILD MIGHT MOLEST MINE, but more like, hmm, maybe our kids might experiment. But I could be naive.