Without knowing the whole situation and any background on either of the children, it's interesting to see people making firm decisions one way or the other.
As nice as it sounds, kids aren't always innocent. I could give you many examples, but here's two.
We had a neighbor who heard her very young toddler scream and found the five year old neighbor boy raping her.
I used to care for a little boy whose parents had exposed him to pornography in a couple of forms, and I can tell you that he was NOT innocent.
There are sick, disgusting, putrid parents who think it's funny and cute to expose kids to this stuff or to encourage sexual behavior in them.
To refer the case doesn't mean they wanted the little kid arrested and tried in front of a jury. It means they think there's something there that needs court action, and if deemed worthy of consideration, they will charge the PARENTS and order some type of intervention for the child.
Maybe it was just a stupid over-reaction. Judging from behavior from such people in the past, it probably was. I HOPE it was. That's so much better than the alternative.
But...we don't know. We probably have 25% of the whole story, and that's simply not enough to judge anyone on. (unless you're CPS, and then it's perfectly legal and perfectly likely...)