What's wrong with the smile? It's just a smile. Not at all creepy. (Sure it's the smile of someone who is looking forward to the chance to kill you later, but it is just a smile.)

"I told you, I know him. Better than he thinks. He likes trying to do the whole mystery thing, but he's not very good at it." Is he having a good time? Yes, yes he is.

He knows that Zack isn't what he thinks he is from what he gathered with his shadow. He knows what Zack is supposed to be because he is betraying his nature as he is and Karan knows all about betrayal.