- It is Christmas in Gotham, and Arnold Flass (former corrupt cop) is the Hangman's third victim. His body is found in an alley outside the Cheetah Room club, runned by the Maroni's, where he had been working as a bouncer.
- Batman pays a visit to their racket boss, Tony Zucco. Batman notes that Zucco didn't pick up the kickbacks from the club, which is suspicious. But Zucco reveals that he was at the club in a middle of negotiating a deal with Scarecrow wanted to rent one of his docks, but when Flass was killed, the area was swarming with cops, Zucco to fled without collecting the kickbacks or finalizing the deal.
- Scarecrow is using an abandoned toy factory in the Gotham Harbor to create fear-toxin filled dolls. Batman asks him if he saw anything in the alley, they struggle and Scarecrow flees. Batman takes solace in the fact that he foiled his current plot.
-Sofia Falcone summons Zucco and the Maroni brothers to account for their failures. Flass's death has attracted unwanted police attention, and Zucco has disobeyed her orders to not do business with Arkham inmates. Her solution to both problems is to destroy the Cheetah Room.
- She tells the brothers (Pino & Umberto) to find Two-Face and her father's body, or there will be no peace between their families.
- Batman, temporarily crazed from Scarecrow's fear gas, sneaks into the Falcone estate and accuses Alberto of being the Hangman. A frightened Alberto insists he has not left the mansion since his release.
- Alberto hears the ghostly, disembodied voice of his father tell him that he used to be powerful, but now he is pathetic. The voice asks what Alberto is going to do now. Alberto cowers in his bed, begging the voices to stop.
