Need help with PC wanted by the Law (Spoilers I think)

[Spectreclouse]

Sorry a little long

A little backstory, first time dming and started with no story, the party has mainly just been mercenaries in and around Korvosa, they are level 7 right now.

PC 1 is a changeling and durning that time had no focus and was getting bored with his character so started shifting to be more Chaotic Evil, he started to do drugs, started to work for Devargo Barvasi, started to do unsavory things.

Since we started the AP about a month ago, we sat down and talked about it, he was hating his class and felt not useful, he changed classes but was still taking drugs and doing odd things.

PC 2 is a lawful good Paladin that kinda looked the other way, mainly I think cause out of game we are all friends, but that changed last night.

Last night they went to deal with the Cow Hammer Boys, Paladin went through the front door while PC1 went through the back. They fought and stuff, but while the Paladin was fighting up front, PC1 for some reason started putting the unconscious thugs up on the meat hooks, Paladin game in and demanded he stopped. After a couple of moments Back and forth they left.

When they returned to Croft, Paladin started to mention what PC1 was doing to the bodies, before he could even finish the sentice, PC1 with drugs on him bolted, seeing the guards, he used Dimension Door outside then his appearce as a changeling.

He’s currently hiding out in the Shingles.

How should I proceed? New to this and not sure if I should be harsh or lenient? Or even how Croft would be able to find a Changeling in a city this huge. If they did catch him, what would the crime be, mutilation of a body?

Tldr, Player been doing shady things, hung up thugs on meat hooks, Party went to tell Croft, player bolted and went into hiding. Not sure how to proceed

[Reverse]

Honestly, it sounds like a good way of retiring an unsuitable PC. A Chaotic Evil criminal shouldn't be hanging around with a Paladin anyway, and this AP doesn't work well for CE characters. Roll up a new, more suitable character, and proceed with the AP.

Croft has no method of finding (or even apprehending) somebody who can change appearance and trivially cast Dimension Door unless you level up her capacities (the PCs in your game are FIVE levels above where they're expected to be for the module, which means they should crush everything with ease), but she'll be interacting with the party repeatedly several more times throughout the AP.