Taisha makes very good points. Find out if he is just playing around and it just happened or if he has observed it somewhere. Good luck.
Taisha-I'm sorry to hear about your daughter. I've been through something similar, and it hurts to read about young children experiencing it. You sound like a good mother.
You should ask him where he observed this behavior. Also talk with him about the "rules" and make sure he knows that he can tell you if something is not right. I would also suggest that you make sure that he understands that he is responsible for his own actions and that he shouldn't do this to other children.
I have an 8yr old daughter who was sexually assaulted by her father when she was 3. This was a learned behavior for her, so she did things in play with other kids like, laying on top of boys ect. I had to make sure she understood that what happened to her was wrong and that she was not at fault for it. I also had to make sure she understood that she was responsible for her own actions and that this is something we don't do, because it breaks the "rules". Good luck.