Where there's smoke, there's fire, in Kelly's opinion... at least where Valerie is concerned. Kelly begins to distrust Valerie when she smells Valerie smoking pot, but cannot convince anyone that the manipulative Valerie is bad news. Brandon refuses to believe Kelly, while Donna doesn't seem to care. Meanwhile, Steve organizes a two-night party at the Peach Pit, Valerie begins to suspect the truth about Dylan's financial situation when she sees him pocketing money from the til at the Peach Pit. Also, Andrea heads out for a night on the town and spies Jesse flirting on the job. While working on a video project with David and Clare, Donna meets a musician and carpenter named Ray Pruit. Kelly finds Valerie and Dylan fooling around in the Peach Pit's backroom and quickly tells Steve about it, but when they both confront Valerie, she spins it around by saying that Kelly misread what she saw, claiming that Dylan was making a pass at her. Steve believes Valerie, but Kelly doesn't. Kelly then angrily tells Brandon about what went down and that Valerie is fooling everyone about who she really is. Brandon remains skeptic and advises Kelly to give Valerie the benefit of the doubt. At the end, the suspicious Valerie gets Dylan drunk at his house, where he finally confesses to her that he is broke.

When the fire marshal shuts down the Peach Pit After Dark for violating capacity, Steve suggests to Dylan and Nat about purchasing the building next door to expand. Unfortunately, Dylan is broke and the only one who knows it is Valerie who is pressured to keep it a secret. The next day, when the Walshes and Valerie are planning a weekend trip to Palm Springs, a fax from Dylan's bank arrives requesting Jim's signature on a mortgage loan that Dylan has taken out, leaving them confused until Valerie finally tells them that Dylan is penniless from Kevin and Suzanne's business scam. Jim then informs Nat, and then apologizes to Dylan for what happened to him, but Dylan is too far gone at this point and rudely tells off Jim and anyone else. Meanwhile, Kelly disapproves when her mother, Jackie, tells her that she wants to return to modeling, but becomes further incensed when Jackie wants to include Kelly's baby sister Erin as well. That evening, David and Clare find themselves in a binding situation when David handcuffs himself to Clare's bed and gets stuck, and soon finds himself alone when Clare has to go out to dinner with her father. Donna continues to juggle dating both Griffin and Ray. But then Griffin takes Donna on a whirlwind trip to Catalina Island with the plans to seduce her, she refuses and finally learns what a creep Griffin really is. Valerie comes to Dylan's house to apologize over losing all his money and they end up sleeping together again. The next morning, Steve and David (not yet aware that Dylan is broke) come over to Dylan's house to talk about the Peach Pit After Dark expansion and they both find Valerie in bed with Dylan. Steve draws the correct conclusion and responds by punching Dylan in his face.