The Baudelaires find their friends -- and then lose them -- at the bottom of an elevator shaft. Count Olaf conducts an auction in disguise.
The Baudelaires do not have the tools to free the Quagmires, but they provide their part of the spyglass and some of its functions, which allow the Baudelaires to return to the top of the shaft by using their parachute like a hot-air balloon.
Finding Esme alone with a passed-out Jerome, the Baudelaires try to warn her of Olaf's scheme, but learn too late that she is in cahoots with him and that they are planning to smuggle the Quagmires out of the city as an item in an upcoming auction. Esme pushes them down the elevator shaft, where they are caught in a net midway down. Sunny helps them to escape safely, and afterwards they find a secret passage that leads to the ashen ruins of their home.
As Esme and Olaf start the auction, the Baudelaires, Mr. Poe, Eleanora Poe, Jacques, Olivia, Larry and Jacquelyn all converge on Veblen Hall and start a bidding war on a box labeled "V.F.D.", which the Baudelaires believe contains the Quagmires. Though the Baudelaires win the auction, they find the box contains only very fancy doilies.
In the aftermath, Olaf's identity is revealed, and he and his troupe escape with a red herring statue—the real auction item that holds the Quagmires. The Baudelaires ask Jerome to help track down Olaf, but he is far too timid to do so, and gives up his guardianship of them. Mr. Poe tells the children that a village with the initials "V.F.D." is willing to raise them.
