Afther having cleared House Undiomede and found a malnourished horse (which quickly bonded with Li) the group sneakily entered Illmarch to get their reward. The mayor however wasn't in his office and wasn't home. His house got trashed and traces of a struggle led the group across a misty and seemingly deserted village.
The tracks seemed to lead to Putrid Pete's ship, the melting skulls. After a quick introduction and a ruse, in the form of trying to sell the Tulby's child to Pete, the group managed to take down the crew on board and Pete surrendered. Pete was quick to fess up his information in exchange for leaving alive. He seemed to be in Illmarch for business only, this business was with the Recondite order of the Indomitable Sea and these fishfolk neighbors for whom he helped kidnap the mayor after which he was forced to walk the plank and disappeared beneath the waves.
The hold of the ship had some trade goods as well as a spellbook and some gold in it. Since the groups money lead is now under the waves they went to Horace Croon for help in going down to these underwater tunnels. Crone happily obliged and looked forward to testing his new invention, this "Subaquatic Research and Exploration Vessel", upon learning of the groups intent to go down the tunnels he offered the group all the information he had about the fostering (which is that they took his sister and would be very appreciative if they could look for Marie, giving them a description of how she looked like 50 years ago).
The small boat token also got identified by Croon and turned out to be a shrunken down "Conquerer", Cassius Undiomede's flagship, manned by over a dozen wooden constructs. Li's horse got left on the ship when they shrunk the boat back down into it's bottle. The painting of the Conquerer riding the Lake's waves now hangs in the captains quarters.
Now with a storm on the horizon and the Watcher in the Bay being spotted dozens of miles away, everyone prepares themselves for a dive deep into Lake Encarthan.