Lester's plan has worked. The gun has indeed been found in his nephew's bag while he was in school, and the police has searched his brother's house and found "the evidence".
Now Mr. Nygaard is being questioned by Bill. Luckily for him, Molly, who is alive, of course, is recovering in Duluth and can't participate in this interrogation. It would have not been so easy to trick her. But Bill basically tells the story for the murderer: Pearl had an affair with Chaz and when she broke it off, he hit her with the hammer. Lester overheard it, but when he went down to the basement, it was all over. Then Vern arrived and Chaz killed him too. After this mild interrogation, Lester walks free, while his brother remains behind bars.
At work he learns that Mrs. Hess has been denied the compensation for her husband's death, so he comes to her house and instead of informing her about this, he implies that if she is willing to "cooperate", he could speed up the process. And so they end up having sex. Breaking bad, are we now, Mr. Nygaard?
Lorne Malvo visits the office of his employer. He asks his boss who could he talk to in Fargo, and after he is denied the answer, points his finger on two phones on the desk and says that one of them calls an ambulance, the other one - a hearse, then he repeats the question. We do not know what the answer was, we only hear a woman scream from inside of the building as Lorne is walking away.
He goes to Fargo's "headquarters" and kills everyone inside (I loved how they shot this scene). Then he leaves, unseen by the FBI tail, who were supposed to spy on Fargo criminals, but did not notice anything suspicious before bodies started falling out of windows, since they were too busy quarreling about the quality of fast food.
As said before, Molly is in Duluth's hospital, and so is Mr. Wrench, whom apparently she managed to shoot before catching the bullet herself, and he is mourning his partner. Gus, being eaten by guilt, tells her he is responsible for her condition, but she doesn't seem to hold it against him. After her "chat" with the deaf guy, whom she recognized from the time when he and Numbers visited Lester's insurance shop, she uses a window glass in her ward to draw the scheme of how Hess, Lester, Fargo and Lorne Malvo are connected. But when she returns to Bemidji, she's devastated by the news of Chaz being arrested for Vern's and Pearl's murder.