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This may not be ideal, but to use an old expression 'needs must when the devil drives'. He must have a place that will take him. This stage may not last forever, or even all that long.
Wishing you the best of luck with a difficult situation.
The solution is to leave him in his room where he can do that all day unless staff is tending him. At which point they should restrain him if he starts playing with himself, then get out to allow him to do that all day.
Also, the staff sound like they are clueless about dementia and memory loss.
The appropriate manner is already being addressed by you; this may be able to be handled with medications. Stay in close touch with the doctors. The facility should not be unused to managing this (hopefully) as it is a manifestation we certainly see often on the forum.
I am so sorry and am wishing you the very best of luck.