Because the current plot has been running so long (it's been, what, four months now?) it's easy to forget parts of the story. However, there's actually a pretty interesting underlying answer to everything that's been going on so far. So here we go, speculation about what's happening:

So we start off with our two main characters: Kaia and Reizo (Reizo, if you've forgotten, was her friend/pen pal from her Neopedia article). Kaia moves from Shenkuu to Faerieland, and Reizo stays behind… temporarily. It seems likely, due to implications we'll get to in a moment, that he tried to visit his friend. And you notice anything about the path from Shenkuu to Faerieland?

It's a pretty straight shot… as long as you go through the Haunted Woods, IE the Place Where Everything Bad Happens ™.

So while Reizo's going through the woods, he stumbles across our plot device for the evening: A red amulet. The same red amulet that Malum, the Wraith's leader, is wearing (glowing in this image to boot):

There are a few reasons to believe that Reizo is Malum:

So why's the amulet important? Because if you check the eye witness accounts:

Note in particular the "red flash" - same color as the suspicious glowy amulet.

This would also explain why Malum's half-Wraith, and why he doesn't revert when defeated like the others - the source of the corruption is literally right on him, changing him from the chest out (which is also why his extremities are still normal).

(Side note: Fyora says that she can reverse the effects if she gets to the source of the magic, so there's a potential way to wrap this plot up).

So that covers Malum. What about Kaia?

If you look back, you might notice something about her:

Kaia is really, really violently angry towards Malum. Like, scarily so. But why?

I'm willing to wager that Kaia doesn't know that Malum is Reizo - after all, if we can cure all the other Wraith pets there's no reason to want to destroy him, and she keeps calling him a "creature". Rather, I'm guessing that Kaia thinks Malum destroyed Reizo, which is why she's so determined to hunt him down. Rage and vengeance does that to you. The Neopedia even established that they continued to send letters, so Reizo abruptly ceasing to write back would probably be enough to give her the impression the Wraiths got him. And when she says this:

It's probably more directed towards what she thinks he did to Reizo than referring to the festival… especially because it's not likely he's the one who attacked the festival to begin with.

As a few people have pointed out, Kaia knows Malum's name in the above quote… despite him never providing it. (And that's not just a writing error - Aethia constantly calls him "the Lupe" in lieu of a name.) She somehow knows where he is, just shrugging it off as vision, which comes across as an excuse rather than a proper answer.

We're also missing a final boss in the 10,000 - 1,000,000 HP range - and according to her Neopedia, Kaia knows a spell that "magnifies your magical powers for a short while.

We already have a claim from Malum that he's not the right guy. But that's not possible, right? We saw him leading the attack in the video:

However, here's the thing - that video is the Angry Yurble's account of the events. And you notice any issues with said account?

Well then, here's what happened… The faeries were all engaged in frivolity, too distracted to notice…

According to his account, the festival was lively and full of Neopets and Faeries during the attack. But according to Aethia:

Really? We're pretty sure nobody was near the Festival grounds when it happened.

The Yurble is even claiming that Kaia and Fyora were there during the attack - and yet Fyora, who's right there when Aethia says that no one was there, doesn't correct her. And Aethia seems to have a good sense of when people are lying or not, seeing as she trusts Malum's claim, making the fact that she doesn't believe him all the more important.

The Yurble didn't actually see what happened - he was lying on behalf of someone else. And he has the motivation to do so:

I get the reward, right?

All Kaia would've had to do is tell the Yurble to say that a Lupe in a cloak lead the attack on the festival, and in return he gets that sweet sweet 50,000 NP reward. This gives everyone a reason to start fighting the Wraiths, and insures they'll attack Malum when he's found. This is why Malum says that they have the wrong guy - the account was falsified. He never attacked the festival to begin with.

Why do I think Kaia would want to the Wraiths to attack Faerieland? Well, remember her motivation - she thinks Reizo was destroyed by them and wants revenge. However, she's one faerie while he has an entire army. So what does she do? She formulates a Wraith attack on Faerieland - thus giving the faeries a reason to attack the Wraiths for her. Hence the above line right after the faeries plan their counterattack. Malum attacks her friend, she attacks back with the force of an army. Be careful who you mess with indeed.

TL;DR: Malum is Reizo,  Kaia's old friend, transformed by the amulet. Kaia thinks Malum destroyed him, unaware the two are the same. She's the one who orchestrated the attack on the festival in order to get the faeries to attack the wraiths, then had the Yurble lie about what he saw.

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