I would discuss this kid and as many of the other kids that you son can think of to play with at Kids Zone, and see if you can get him to agree that Fred is not being a nice boy or behaving the way your son is supposed to, and that he is going to get him in trouble all of the time if he keeps hanging around with him. Get your son on your side so he can make the choice. After all, he is going to encounter this all of the time.Try and find out what 'nicer', better behaved kids are there and 'set him up with' some other kids, ask the counselors to direct him to play with a more age-appropriate group of friends, or find him just one other same-aged kid and get them busy playing together so they can hit it off, and make this Fred issue disappear. See if you can make your son see how 'wrong' this boy Fred behaves, by comparing his behavior to other well behaved kids he knows from school or from anywhere else (preferably ones you also know well so you can really gauge if they are 'good' kids, so your comparison is a good one.) In other words, if it hasn't helped to try and make the teachers/counselors responsible, and sincee you can't be there at all times, see if you can make your son responsible for his choice of friends. Kids know, even at this young age, who is a 'good' kid to play with, and who gets them in trouble and teaches them bad behavior and makes them lose other potential friends over. Yes I agree this kid is bad news for your son. But it sounds like he could easily take matters into his own hands and stop playing with Fred if he has other good kids and things to keep him busy, as well as the knowledge of how to tell a good kid from a bad influence. My son is 5 and knows right away, and tells me, when someone is a troublemaker. But probably because I ask and compare and show him, constantly talking in his ear about how whatever so and so did wasn't very nice, was it?...and wow, what a nice thing it was that so and so did today, wasn't it? And did he see anyone else get in trouble today? Or did he encounter anyone else doing something really good today? etc etc. You just have to tell them, over and over again, til they can see it for themselves. I hope it works out for you.
---I want to add, that, after reading what everyone else wrote in response here, I would highly agree with the people who say DO NOT have this child over for a playdate, because you need to look at it from your son's perspective. He will think you are encouraging his friendship with Fred if Fred is allowed to come over and play, not that you're just checking out him and his parents. Also, you will then have to lie over and over again to these parents about how you're too busy to have them over again, if it doesn't work out, or face the difficult conversation about how my son is not allowed to play with your son. He will become closer friends with Fred, rather than distance himself from someone who tells him to pull his pants down. This kid is absolutely bullying your kid, not in a way that hurts him physically, but in a way that this kid is controlling your child's behavior, b/c your son is younger and more naive than this kid. Trust your gut. And not because he is necessarily a terrible kid, bc maybe he's not, for example if were playing with other kids his own age and who he saw as peers, they would probably not go for his bad advice on how to get in trouble and fall for his tricks. Only the ones without good judgement skills would.
And i'm sorry, no, there's not much difference between a 32 year old and a 34 year old for example, but there is a HUGE difference between a 5 and a 7 year old in terms of age and maturity. If both kids, of such different ages, are being well supervised or are trusted to play like well behaved children, it is a wonderful thing, as several people mentioned below, to have them playing together, and healthy and good for them. But if one older child is taking advantage of a younger child's inability to decipher between good and inappropriate behavior, then an adult needs to intervene and cut off the friendship before it gets worse. And the parents of Fred do need to be told about their son's behavior so they can do something about it. Just my two cents.