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In London, prior to his sentencing, evil professor James Moriarty gives a speech in which he promises that all the individuals involved in sending him to the gallows shall die before he does. Meanwhile, famous sleuth Sherlock Holmes, who is retiring from the detective business, prepares to give his new invention, a ray gun that will destroy criminal automobiles, to the police as a retirement gift. Holmes sets out to begin his retirement on his fiancée Alice Faulkner's farm, but when Moriarty kills his prison guards and escapes, Holmes is immediately called back to London. There he is assigned to investigate the disappearance of Judge Erskine, who presided over Moriarty's case. Holmes finds Erskine's corpse hanging in a hidden closet in his office, but does not believe that the judge wrote the suicide note found on his desk. At a carnival, Moriarty meets with gangsters Homer Jones, Hans Dreiaugen, Manuel Lopez and Gaston Roux, at a wax museum. Later, Jones explains his plan to introduce an American-style protection racket in London. Moriarty, realizing the threat of both Holmes and Colonel Gore-King of the police to his racket, plans to have Holmes accidentally shoot the colonel. Later, when Holmes receives funeral flowers, he is led to expect an unfriendly visit from Jones, and sends his assistant, Dr. Watson, to keep Alice away from the danger. Moriarty's plan appears to succeed when Holmes mistakes Gore-King for Jones and shoots him, but, in the ambulance, the colonel reveals that he is not injured. Holmes, who was on to Moriarty's ruse, wants him to believe that his plan has succeeded. Alice, meanwhile, becomes disillusioned, and takes Holmes's young protege, Billy, to live with her. After Jones fails in his attempt to sell pub owner George protection, he fills the city with grenades and machine gun bullets to prove the necessity of buying protection. In order to avoid being noticed by Moriarty's men, Holmes disguises himself as an elderly woman. He then goes to Alice's father and tells him that Moriarty is tunneling into his bank. When Moriarty shows up at Faulkner's house and tells Faulkner that his daughter has been abducted, Holmes believes she must be in the tunnel, and leaves to rescue her. As the gang robs the bank's safety deposit boxes of gems, Holmes signals the police, and a shootout ensues. During the shootout, Moriarity attempts to flee, but as he prepares to use Alice and Billy as shields, he is shot by Holmes. With the criminals put out of commission, Holmes resumes his preparations to marry his fiancée, and Gore-King agrees to be his best man.