After dumping the thief in the stables, the party follows up on the rumor regarding tentacled horrors in the canals. Down at the docks they see a gang of slaves being led onboard of a strange metallic ship, flying a pirate flag (red circle on black field, with two smaller reddish-grey orbs superimposed on the upper right edge of the larger circle), seemingly captained by a crimson-skinned human. After observing for a while, they decide not to get involved - both slavery and piracy are accepted in Arys.
Pausing near the canal, Darged the hobbit decides to take a moment to attempt to train his goat (he has a Talent in training goats to be attack animals). Before he can finish his session as 'goat-whisperer', a barbed tentacle rises out of the septic canal and snatches up the goat, which bleats out its last seconds of life in a wild panic. Combat with the poly-tentacled thing ensues; after a few moments two humanoid piscean monstrosities leap out of the canal to join the fray on the side of the tentacles. The party is routed and flees for their lives.
Several blocks away it becomes obvious they are being stalked by dozens of shadowy figures on rooftops and the dark recesses of alleys and door wells. The party halts and two men approach. One is the thief who had been dumped in the stable, looking eager for revenge. The 'leader' engages them in a 'discussion' that boils down to the fact that freelance thieves and adventurers in Arys are unwelcome and acts against the Guild won't be tolerated (urinating on members is apparently a big no-no in the Guild's bylaws....). They are given a ten day grace period to cough up 300gp each to become Guild members, or else if they are discovered in Arys again, things will go badly for them. When they ask how they can come up with that kind of gold, a mysterious keep to the north in the Witchwood is sarcastically suggested as a potential place to plunder. It is rumored to be a great storehouse of treasures - for those who can survive to take it. With that, the shadows merge back into the darkness and the party is left alone on the dark streets of Arys to ponder its options.