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The owner of the phone scammed your brother. Whenever a device is lost or stolen, the missing device gets blocked by the insurance carrier and it cannot be unblocked unless the seller returns his replacement device to the insurance company.
Your only recourse would be to take the seller to small claims and attempt to get your money back, it's up to you as to if it would be worth the time, money, and effort.
The fact that he got an insurance replacement should have been your first clue. I'm not a lawyer but I'd say it depends on what title was sold to your brother. If the seller just offered a quit-claim, offering whatever title he had, then it may be tough to make a case. If he warrantied that it would be usable, you might have a case.
Aww, that's so rough!
I've heard of folks doing this and I really wish I had a solution for you but this will need to be worked out with the seller. Blocking the device is the result of filing that claim. We can't offer any legal advice here, but if you do go that route, I wish you the best of luck that something can be done.