The Penguin shot the Fat Clown dead after he questioned The Penguin's plan for the kidnapping and drowning of children. The Penguin proceeded to kick the Fat Clown's bullet-riddled corpse into the murky depths of the sewers. Later, Max Shreck found the Fat Clown's body at the bottom of the sewers, and took his Smith & Wesson Model 15-3 pistol, using it to shoot Catwoman four times. Whether the Fat Clown's corpse remained on the sewers as his final resting place or was recovered isn't known.
From all the members of the Red Triangle Circus Gang, the Fat Clown seems to be the only one who was honorable, as he refused to aid the Penguin and his fellow teammates in the plot to kidnap and drown all firstborns from Gotham's wealthy citizens, yet such decision costed him his life.
It's unknown how the Fat Clown's gun could've been functional after submerging in water as in real life. A wet gun's powder would ruin the gun, therefore, a bullet would be unable to be ejected. It is possible that Shreck may have added new bullets while Batman tried to talk Catwoman out of killing him.
In the Batman Returns video game for the SNES, two versions of the Fat Clown are encountered: red (jumps towards Batman) & green (dashes towards Batman).