Get your nephew a pet bunny and tell him that you were asked by the Easter Bunny to have him raise and care for the bunny. It'll distract him and he'll learn a thing or two about being a good pet owner.
so explain to your nephew that your brother in law is a jerk and he's playing a prank. I'm not an Easter Bunny person, but you don't screw with kids like that. it's up to his parents if they want to reveal that type of stuff