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Kevin McLaughlin is haunted by shadows. The foe is a corporation that was changing its colors long before McLaughlin, a Greater Des Moines stockbroker, knew it or its driving force, billionaire John Kluge, even existed.

But over the past eight years, McLaughlin has scrutinized Kluge and the beast, Metromedia International Group Inc., in exhausting detail, and at a personal cost of at least $1 million.

“I don’t want to ever stop fighting; I don’t want to give up,” McLaughlin said.

At one point, the fight nearly cost him his job. It has created tension within his family. It has caught the attention of powerful congressmen and a state legislative committee that took up his cause.

And to date, it has gotten him nowhere.

He has yet to see audited financial results that would explain why a business described as profitable and financially sound in November 2006 by a Delaware judge sold at a substantial loss to shareholders a year later. He wants to know whether he was taken advantage of by crooks or by businessmen who transformed from extremely astute to recklessly naive.

Metromedia International caught McLaughlin’s attention in the mid-1990s when he was looking for a way to invest in emerging markets, but wanted to place his money with “experienced people with American accounting standards,” he said.

He read a magazine article about Kluge and Metromedia International, then contacted a client in Colorado. As it turned out, the client didn’t know Kluge personally, but he was suing the billionaire over telephone contracts in Las Vegas. Still, based on media reports and the conversation with the Colorado client, McLaughlin had the impression that Kluge was honorable enough, and his success was undeniable, having been named the richest man in America by Forbes magazine in 1989.

Kluge built his fortune by buying TV stations on the cheap and selling them, eventually, to another wealthy man, Rupert Murdoch. Those stations became the foundation of Murdoch’s Fox television network, not to mention a business partnership that would see Murdoch become a principal shareholder in Metromedia.

At various times over the past 23 years, Metromedia and its subsidiaries have owned a manufacturer of lawn equipment, restaurants, taverns, Orion Pictures, a movie theater chain, fiber-optic networks, peanut companies, even the syndication rights to popular television shows.

But it was Metromedia International’s foray into the telecommunications industry in Eastern Europe and Russia that triggered McLaughlin’s interest as a stockbroker.

American investors abroad

McLaughlin began investing in Metromedia in 1996, and he encouraged others to do so as well.

His optimism was based on Kluge’s track record – in 1989 the German immigrant began a three-year reign as Forbes’ wealthiest man in America – and his relationship with Murdoch.

In addition, Kluge’s interest had turned to the burgeoning markets in former republics of the Soviet Union. Kluge and business partner Stuart Subotnick were quoted in a variety of business publications forecasting profits of billions of dollars as a result of the ventures, which included wireless communications, land-based telephone service, cable television and the Internet.

From an initial 88,000 cable subscribers in the former Soviet Union, Metromedia eventually boasted that its lines touched more than 15 million homes.

Furthermore, McLaughlin liked Kluge’s approach to acquiring existing Eastern European, Russian and Chinese communications businesses, with Metromedia holding up to a 50.1 percent stake in the companies and local investors controlling the remainder, thereby limiting competition.

“These were sophisticated people who knew how to penetrate markets,” he said.

Three years after his first investment in Metromedia, McLaughlin’s enthusiasm was waning. In 2001, at age 50, he began a search for answers to the company’s downfall that continues today.

A growing company’s missteps

By 2001, Metromedia owned more than 50 companies providing communications services. It also was locked in a fight among shareholders over control of the company.

Although Metromedia was expanding overseas, a majority of its revenue was being generated by Snapper Inc., the lawn mower manufacturer that, at the time, was fully owned by Metromedia International.

The company’s stock also was crashing.

By that year, Kluge had dropped to 13th on the Forbes list, with the magazine estimating his net worth at $13 billion. His fortune apparently was plummeting because of Metromedia’s foray into foreign markets.

The New York Times estimated that the value of Kluge’s nearly 20 percent stake in the company had fallen to about $21 million from about $100 million.

Elliott Associates LP and Snyder Capital Management LP, which held nearly 7 million shares of Metromedia stock, filed a lawsuit seeking more openess from the company and later, called for a shareholders meeting to add two independent directors to its board, claiming that the company’s current board was not acting in shareholders’ best interests.

In a filing with the U.S. Securities and Exchange Commission (SEC), Elliott Associates said the value of Metromedia stock had dropped 86 percent since November 1995, closing at $2.44 a share on Sept. 10, 2001.

The effort failed, in part because Murdoch’s News Corp., which had acquired more than 9 million shares in Metromedia after selling its stake in a Russian telecommunications company to Metromedia for about $37 million, did not support his efforts.

Cut and run

McLaughlin watched from the sidelines as the two hedge funds attempted to shed some light on Metromedia.

He was losing money on his investment, as were the nearly 200 Iowa investors he led to the company.

The chief concern was that Kluge was attempting to devalue the company, sell its assets, then purchase them at fire-sale prices and resell them at a profit.

That concern wasn’t completely unfounded.

Kluge had taken the same track in creating his private holding company, Metromedia Co., out of the ashes of his publicly traded Metromedia Inc. in 1983, when it was suffering from bad publicity about its accounting practices and saw the value of its stock drop about 50 percent.

Murdoch bought many of Metromedia Inc.’s television stations for about $2 billion and created the Fox network.

Media reports at the time said that Kluge netted about $8 billion by taking the company private. In a short time, Forbes named him the richest man in America.

McLaughlin began requesting Metromedia International’s scant filings with the SEC, questioning its cash-flow statements and marking the apparent disappearance of several million dollars in assets.

He hired a forensic accountant to go through the filings. McLaughlin and the forensic accountant were troubled by listings in the filings for loans to Metromedia affiliates. Details of the loans were not provided in the SEC filings, nor were they revealed to shareholders.

The gaps were huge. By the calculations of both men, the loans could have ranged from $275 million to $550 million, depending on interest rates charged for the loans.

Those numbers were based on the company’s restated financial report for 2002 and based on a listing for “non-cash intercompany interest of more than $33 million.”

In the original filings for 2002, the company reported contractual obligations to loan $103.9 million to affiliates, with $18.4 million available in the credit facility.

During that time, Metromedia International was claiming a cash crisis. It suspended dividend payments to holders of preferred stock. It also was in the process of selling its lawn mower company and its holdings in China and Russia.

Rattling cages

McLaughlin was well on his way to losing $300,000 in his personal investment in Metromedia International. By his accounting, the shareholders who invested on his advice were losing between $3 million and $5 million.

In 2002, Kluge resigned from the board. A former company officer said in a court deposition that his impression was that Kluge wanted to get away from the company. His right-hand man, Subotnick, had resigned the previous year in a concession to shareholders.

McLaughlin was beginning to believe that one of America’s premier capitalists, Kluge, was either being gamed by his Eastern European counterparts or was culpable in Metromedia International’s slow burn.

He wanted answers and took his concerns to the SEC. In 2005, he filed a lawsuit in Delaware Chancery Court seeking access to Metromedia International’s books and records.

The SEC, for its part, sent McLaughlin something of a “Dear John” letter, saying that it took his concerns seriously but that it could not tell him or anyone else whether it was investigating the company.

It is clear from the public record, however, that the commission was keeping track of Metromedia International.

In 2006, the commission ordered the company to restate its financials back to 2001. By the end of the year, the company had refiled financials for 2002, 2003 and 2004, the last year for which it filed financial statements.

In April 2007, the SEC gave Metromedia International no more than 15 days to file complete financial statements or face deregistration, fines and sanctions.

The company responded that it would have difficulty meeting the deadline.

Instead, Metromedia International was entertaining suitors, principally investment funds based in the former Soviet Georgia, the British Virgin Islands and Bermuda.

By October 2007, Metromedia International had been taken private. Among the intrigue surrounding the company was the fact that one of the investment funds involved in the buyout had close ties to a Russian fugitive. The man later was found dead in his London home.

There were other legal efforts to block the sale. A former member of the Metromedia International board also made a brief play for the company. In the end, the company was sold for $1.80 a share.

No hard feelings

McLaughlin continues to seek answers,

In 2008, the Iowa Legislature’s Government Oversight Committee invited him to testify about his experiences.

As a practical matter, there was little the committee could do, other than attempt to seek answers from Metromedia International and hope to prod the SEC into action.

“If the system is working out the way Kevin believes it is, that’s a pretty frightening situation,” said Rep. Linda Upmeyer, member of the committee.

McLaughlin has the support of the U.S. House of Representatives Financial Services Committee, which sent a letter March 3 to SEC Chairwoman Mary Shapiro asking that her agency “thoroughly review” documents provided by McLaughlin.

A local investor said he appreciates McLaughlin’s efforts. Brad Bunce said he lost about $60,000 through Metromedia International, enough to put off any plans for an early retirement.

“I don’t really believe that this was something that he could have foreseen,” Bunce said. “I really believe that this thing was manipulated so that I can’t hold him responsible for it. I think these guys are that slimy and they are getting away with it.”