PRE-PUBLICATION QUESTIONS AND RIGHT OF REPLY Investigation: PIF and Magic Leap: Billions, Broken Strategies and the Unanswered Questions Behind a Saudi Technology Bet
PURPOSE OF THIS DOCUMENT THE DEEP FILES is preparing an investigation concerning the Public Investment Fund’s investment in Magic Leap, subsequent financing, acquisition of control, governance, valuation, strategic changes, workforce reductions, intellectual-property collateral arrangements and the current economic value of the investment. The questions below are provided before publication to give the relevant organizations and individuals a fair opportunity to respond, correct factual inaccuracies, provide missing context, dispute interpretations and supply supporting documents. The inclusion of a question does not imply wrongdoing. Where a question concerns potential conflicts, payments, corruption, bribery or other misconduct, THE DEEP FILES is seeking clarification and is not asserting that such conduct occurred.
PART I — QUESTIONS TO THE PUBLIC INVESTMENT FUND
A. Origin of the Investment
1. Who first introduced or originated the Magic Leap investment opportunity within PIF?
2. Which PIF executive or investment professional sponsored the proposed investment internally?
3. Which PIF department was principally responsible for evaluating Magic Leap in 2017–2018?
4. Which PIF committee or committees reviewed the investment?
5. On what date was final approval granted for PIF’s $400 million Series D investment announced in March 2018?
6. Who participated in the final approval?
7. Was the decision unanimous?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
8. Were any reservations, dissenting opinions or risk warnings recorded?
B. Due Diligence Before the $400 Million Investment
9. What independent financial due diligence was conducted?
10. What independent technical due diligence was conducted?
11. What commercial or market-demand assessment was conducted?
12. Did PIF independently test Magic Leap’s projected demand for its first consumer product?
13. What first-year unit sales were assumed in PIF’s investment case?
14. What revenue was projected for the first three years following commercial launch?
15. What operating cash burn was forecast?
16. What additional capital requirements were anticipated?
17. When did PIF’s investment model forecast Magic Leap reaching positive operating cash flow?
18. Did PIF conduct downside scenarios involving substantially lower-than-expected consumer adoption?
19. What valuation methodology was used?
20. Did PIF obtain an independent valuation?
C. PIF’S ADVISERS
21. Which financial adviser represented PIF in connection with the 2018 investment?
22. Which law firm represented PIF?
23. Which technical consultant assessed Magic Leap’s technology?
24. Which consultant assessed the addressable market and expected consumer demand?
25. Which accounting or tax advisers participated?
26. What fees were paid to each adviser?
27. Were any advisers paid success fees contingent upon completion of the transaction?
28. Were any intermediaries, introducers, placement agents or consultants compensated for introducing Magic Leap to PIF?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
29. If so, who were they and how much were they paid?
D. THE 2020 CRISIS
30. Following Magic Leap’s 2020 restructuring and announced workforce reductions, did PIF conduct a formal review of its investment?
31. Was Magic Leap’s valuation revised internally?
32. Did PIF’s risk department review the investment?
33. Did PIF Internal Audit conduct any review?
34. Did PIF consider selling or reducing its position?
35. Did PIF participate in the approximately $350 million financing announced in May 2020?
36. If so, how much did PIF contribute and through what instrument?
37. If PIF did not participate, which investors supplied the financing?
E. THE $638 MILLION CONVERTIBLE NOTES
38. PIF’s financial statements indicate that approximately $638 million of pre-existing convertible notes were converted into equity when PIF obtained control of Magic Leap. When were those notes originally issued?
39. Did PIF purchase those notes directly from Magic Leap?
40. If not, from whom were they acquired?
41. How much cash did PIF originally transfer in exchange for those notes?
42. What interest rate applied?
43. What was their maturity?
44. What was their conversion price or conversion mechanism?
45. Were the notes amended before conversion?
46. Were the notes secured?
47. If secured, what collateral supported them?
48. Were Magic Leap patents, trademarks or other intellectual property included?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
49. Were the notes senior, subordinated or pari passu with other Magic Leap debt?
50. Which PIF committee approved the acquisition or funding of these notes?
F. THE 2021 CONTROL TRANSACTION
51. Why did PIF decide to increase its exposure and obtain majority control after Magic Leap’s 2020 restructuring?
52. What valuation supported the acquisition of 53.61%?
53. What revenue assumptions supported that valuation?
54. What enterprise-sales assumptions were used?
55. What operating cash-flow assumptions were used?
56. What additional capital requirements were forecast?
57. What intellectual-property valuation was performed?
58. Did PIF obtain an independent fairness or valuation opinion?
59. Who prepared the investment memorandum recommending that PIF obtain control?
60. Which PIF committee approved the transaction?
61. Who voted in favor?
62. Were any objections recorded?
G. THE $500 MILLION OCTOBER 2021 FINANCING
63. How much of the $500 million financing announced by Magic Leap in October 2021 was provided by PIF or PIF-controlled entities?
64. Was any portion of that $500 million already reflected in PIF’s August 2021 acquisition accounting?
65. If so, what amount?
66. Who provided the remaining financing?
67. What securities were issued?
68. What ownership and voting rights resulted?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
H. THE GOODWILL
69. PIF recognized approximately SAR 2.74 billion of goodwill associated with Magic Leap. What principal economic benefits supported that goodwill?
70. How much was attributed to expected growth?
71. How much depended upon enterprise commercialization?
72. How much depended upon intellectual property or technology?
73. Who prepared the forecasts used in the impairment assessment?
74. Were those forecasts independently reviewed?
75. What revenue was forecast for 2024?
76. What revenue was actually achieved?
77. What EBITDA was forecast for 2024?
78. What EBITDA was actually achieved?
79. What operating cash flow was forecast?
80. What operating cash flow was actually achieved?
81. Were the forecasts revised following Magic Leap’s 2024 restructuring?
82. Has any impairment subsequently been recognized?
83. What is the current carrying value of Magic Leap in PIF’s accounts?
I. THE 2023–2024 FINANCING
84. Magic Leap’s accounts indicate that $590 million of convertible debt was provided during 2023. Was PIF the sole provider?
85. Which PIF entity provided the financing?
86. What was the interest rate?
87. What is the maturity?
88. What are the conversion terms?
89. Is the financing secured?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
90. What assets secure it?
91. Who approved the financing within PIF?
92. What commercial milestones were required before the financing was approved?
93. Through August 2024, an additional $160 million was provided. Who approved this additional capital?
94. What milestones had Magic Leap achieved before the additional financing was released?
95. What milestones had it failed to achieve?
J. THE REPORTED 2025 FINANCING
96. Did PIF or any PIF affiliate provide approximately $205 million of additional financing to Magic Leap during 2025?
97. If so, on what date?
98. Through which entity?
99. Was the financing equity, debt, convertible debt or another instrument?
100. What is its maturity?
101. What interest rate applies?
102. Is it secured?
103. What collateral supports it?
104. What investment case justified further funding?
K. PIF AS SHAREHOLDER AND CREDITOR
105. Is PIF currently both Magic Leap’s controlling shareholder and creditor?
106. If so, what procedures are used to manage potential conflicts between PIF’s interests as shareholder and creditor?
107. Were independent directors used to approve related-party financing?
108. Was a special committee established?
109. Did any PIF-appointed directors recuse themselves?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
110. Were minority shareholders provided independent representation?
L. CURRENT EXPOSURE
111. What is PIF’s current direct and indirect ownership percentage in Magic Leap?
112. What percentage of voting rights does PIF control?
113. What is the total outstanding principal owed by Magic Leap to PIF or PIF affiliates?
114. What accrued interest is outstanding?
115. What portion of PIF’s exposure is secured?
116. What portion is unsecured?
117. What is PIF’s current estimated recoverable value?
118. Has PIF written down any portion of the investment?
119. Has PIF received any cash distributions, interest, repayments or other proceeds from Magic Leap?
120. What is PIF’s cumulative net cash exposure after accounting for any recoveries?
PART II — QUESTIONS TO MAGIC LEAP
A. Money Received
121. What cumulative amount of cash has Magic Leap received from PIF and PIF-controlled entities since 2018?
122. Please provide the amount by year.
123. How much was equity?
124. How much was preferred equity?
125. How much was convertible debt?
126. How much was conventional debt?
127. How much remains outstanding?
B. USE OF FUNDS
INVESTIGATIONS • DOCUMENTS • EVIDENCE
128. How much PIF-supplied capital was used for research and development?
129. Payroll?
130. Manufacturing?
131. Capital expenditure?
132. Acquisitions?
133. Debt repayment?
134. Interest?
135. Legal and professional fees?
136. Restructuring?
137. Severance?
138. Intercompany transfers?
139. Cash reserves?
C. COMMERCIAL PERFORMANCE
140. What were Magic Leap’s actual unit sales for its first consumer product?
141. What unit sales had management forecast?
142. What revenue was originally forecast?
143. When did management determine that the consumer strategy was no longer viable?
144. When was PIF informed?
145. What financial analysis supported the enterprise pivot?
146. What revenue targets were established for the enterprise strategy?
147. Were those targets achieved?
D. 2024 RESTRUCTURING
148. Why were approximately 75 positions eliminated in 2024?
149. Were the entire sales and marketing teams eliminated?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
150. Who proposed the restructuring?
151. Who approved it?
152. Was board approval required?
153. Which directors voted?
154. Did PIF-appointed directors participate?
155. What severance was provided?
E. 2026 STRATEGIC CHANGE
156. When did Magic Leap decide to cease prioritizing first-party device development?
157. Who proposed the partner-first strategy?
158. When was it approved by the board?
159. What financial analysis supported the decision?
160. What happened to existing first-party product-development programs?
161. How many positions were eliminated as a consequence?
162. What is Magic Leap’s current worldwide employee count?
PART III — QUESTIONS TO YASIR AL-RUMAYYAN
163. When did you first become directly involved in Magic Leap governance?
164. What was your role in PIF’s decision to continue financing Magic Leap after you became chairman?
165. Did you participate in approvals concerning PIF financing provided during 2023–2025?
166. Did you participate in approval of the July 2024 restructuring?
167. Did you participate in approval of the 2026 strategic restructuring?
168. Did you ever recuse yourself from a Magic Leap board decision involving financing from PIF?
169. What procedures were used to address PIF’s position as both controlling shareholder and financing provider?
170. What financial return does PIF currently expect from Magic Leap?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
171. In your assessment, what measurable strategic value has PIF received from its investment?
172. Have you requested or received an independent review of the investment’s performance?
PART IV — QUESTIONS TO JERRY TODD
173. When did you join Magic Leap’s board?
174. Were you involved in PIF’s 2021 decision to obtain majority control?
175. Did you review Magic Leap’s commercial performance before that transaction?
176. Did you participate in approvals of later PIF financing?
177. Did you participate in the 2024 restructuring decision?
178. Did you participate in the 2026 strategic change?
179. Have you ever recused yourself from a vote concerning PIF financing?
180. What performance benchmarks were used to determine whether additional PIF capital should be provided?
PART V — QUESTIONS TO TURQI AL-NOWAISER
181. What role did PIF’s International Investments Division play in the original Magic Leap investment?
182. Did you personally participate in evaluating Magic Leap before PIF obtained majority control?
183. Did you participate in recommendations concerning subsequent financing?
184. What financial and commercial milestones were used to assess Magic Leap?
185. Was an exit, sale or reduction of PIF’s position considered?
186. What analysis justified continued funding after repeated strategic changes?
PART VI — QUESTIONS TO PIF INTERNAL AUDIT / MIKE CHENG
187. Has PIF Internal Audit ever conducted an investment-specific review of Magic Leap?
188. If so, when?
189. What was the scope?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
190. Did the review address valuation?
191. Liquidity?
192. Intellectual-property collateral?
193. Related-party financing?
194. Conflicts of interest?
195. Investment-performance monitoring?
196. Were any recommendations issued?
197. Were those recommendations implemented?
PART VII — QUESTIONS TO RONY ABOVITZ
198. What sales projections were presented to PIF before its March 2018 investment?
199. What revenue projections were presented?
200. What cash-burn forecasts were provided?
201. Was PIF informed of the full capital expected to be required before Magic Leap could become self-sustaining?
202. Did Magic Leap or any representative pay an intermediary, introducer or adviser specifically in connection with obtaining PIF’s investment?
203. What role did Allen & Company play in negotiations with PIF?
204. When did you first conclude that the consumer strategy required fundamental revision?
205. When was PIF informed?
206. Why did you step down as CEO?
PART VIII — QUESTIONS TO PEGGY JOHNSON
207. What financial condition did you find when you became CEO?
208. What assumptions supported the enterprise strategy?
209. What revenue targets were established?
210. What information was provided to PIF before it obtained majority control?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
211. Did you participate in negotiations concerning the 2021 control transaction?
212. What additional capital requirements were anticipated at that time?
213. Did management expect Magic Leap to require hundreds of millions of dollars of additional financing after 2021?
PART IX — QUESTIONS TO ROSS ROSENBERG
214. What financial condition did Magic Leap face when you became CEO?
215. Why was another major strategic shift required?
216. Why were sales and marketing functions eliminated?
217. What commercial performance had those teams achieved?
218. What analysis supported a technology-licensing strategy?
219. What additional funding requirements were identified?
220. What role did PIF-appointed directors play in approving the restructuring?
221. What is the company’s path to sustainable positive cash flow?
PART X — QUESTIONS TO ALLEN & COMPANY
222. Did Allen & Company advise Magic Leap in connection with PIF’s 2018 investment?
223. What services were provided?
224. Did Allen prepare or review Magic Leap’s valuation?
225. Did Allen receive management sales forecasts?
226. Did Allen receive cash-flow forecasts?
227. Were those forecasts provided to PIF?
228. Did Allen conduct any independent assessment of those forecasts?
229. Did Allen receive a success fee connected to PIF’s investment?
230. What fees were paid in connection with the transaction?
231. Did Allen participate in any subsequent Magic Leap financing involving PIF?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
PART XI — QUESTIONS TO AKIN GUMP
232. Did Akin Gump advise PIF directly or indirectly regarding Magic Leap?
233. Was any Magic Leap-related work performed under PIF’s 2018 engagement?
234. Did the firm’s CFIUS work include the Magic Leap transaction?
235. If so, what was the scope of the engagement?
236. What fees were paid for Magic Leap-related work?
237. Did the firm conduct or participate in legal due diligence concerning Magic Leap?
PART XII — QUESTIONS TO CITIBANK
238. In what capacity does Citibank act as collateral agent in relation to Magic Leap?
239. Which facility or facilities are secured?
240. What categories of secured parties does Citibank represent?
241. Has PIF ever been a secured party represented by Citibank in connection with Magic Leap?
242. Has any PIF-controlled or PIF-affiliated vehicle been a secured party?
243. Are PIF’s $590 million 2023 convertible financing or subsequent financings secured obligations under the collateral structure?
244. If not, whose obligations are secured?
245. What intellectual property is currently subject to the security arrangement?
246. Do the security interests extend to after-acquired intellectual property?
247. Do they include waveguide technology developed after PIF obtained control?
248. What is the current outstanding secured balance?
249. Who has authority to direct enforcement?
250. What priority applies among the relevant creditors?
PART XIII — QUESTIONS TO JPMORGAN CHASE
INVESTIGATIONS • DOCUMENTS • EVIDENCE
251. In what capacity did JPMorgan Chase Bank act as collateral agent beginning in August 2019?
252. Which obligations were secured?
253. Who were the secured parties?
254. Why was the collateral-agent position subsequently transferred to Citibank?
255. Did PIF or a PIF affiliate have any interest in the secured obligations at the time of the transfer?
256. Was the transfer connected to refinancing or restructuring of Magic Leap’s debt?
PART XIV — QUESTIONS TO MAGIC LEAP’S AUDITORS
257. What procedures were performed concerning Magic Leap’s ability to continue as a going concern?
258. How were PIF financing commitments considered?
259. How were convertible debt instruments classified?
260. How were related-party transactions with PIF evaluated?
261. How were secured creditor claims considered?
262. Were any material uncertainties identified?
263. Were any valuation assumptions challenged?
264. Were any internal-control deficiencies identified in connection with financing, related parties or valuation?
PART XV — CORRUPTION, CONFLICTS AND INTERMEDIARIES These questions are being asked because the investigation is examining whether any undisclosed intermediary or conflict existed. They do not constitute an allegation that such payments or relationships existed.
265. Did any PIF employee, director, adviser or related party receive compensation from Magic Leap or any Magic Leap investor in connection with PIF’s investment?
266. Did any Magic Leap executive, shareholder or adviser make any payment to a person connected to PIF?
INVESTIGATIONS • DOCUMENTS • EVIDENCE
267. Were any introducer fees paid?
268. Were any success fees paid to individuals rather than established professional advisers?
269. Did any adviser represent both PIF and Magic Leap in any part of the transaction?
270. Were any related-party relationships disclosed to PIF’s investment committee?
271. Did any PIF decision-maker have a financial interest in an adviser, intermediary, creditor or Magic Leap shareholder?
272. Did PIF conduct conflict-of-interest checks before approving the investment?
273. Were those checks repeated before the 2021 control transaction?
274. Were they repeated before subsequent financing?
275. Has PIF received any allegation, whistleblower report or internal complaint concerning improper payments or conflicts connected with Magic Leap?
276. If so, was it investigated and what was the outcome?
PART XVI — DOCUMENT REQUESTS To permit accurate reporting, THE DEEP FILES invites the relevant parties to provide, where legally permissible:
277. PIF’s 2018 Magic Leap investment memorandum.
278. The 2021 control-transaction investment memorandum.
279. Relevant investment-committee approvals.
280. Relevant board approvals.
281. Independent valuation reports.
282. Technical due-diligence reports.
283. Commercial due-diligence reports.
284. Adviser engagement letters.
285. Adviser-fee schedules.
286. Documents governing the approximately $638 million of convertible notes.
287. Documents governing the 2023 $590 million convertible financing.
INVESTIGATIONS • DOCUMENTS • EVIDENCE
288. Documents governing the additional 2024 financing.
289. Documents governing any 2025 PIF financing.
290. Current Magic Leap capitalization table.
291. Current debt schedule.
292. Current collateral schedule.
293. The relevant Collateral Agreement.
294. The Collateral Agency and Intercreditor Agreement.
295. Relevant amendments, supplements and accession agreements.
296. Forecast-versus-actual performance reports for 2021–2025.
297. Goodwill impairment analyses.
298. Any PIF Internal Audit report concerning Magic Leap.
299. Board materials concerning the 2024 restructuring.
300. Board materials concerning the 2026 partner-first restructuring.
RIGHT OF REPLY THE DEEP FILES welcomes responses on the record and will consider supporting documentation supplied with any response. Recipients are invited to:
• answer all or selected questions;
• identify factual inaccuracies;
• provide additional context;
• dispute any interpretation;
• provide supporting documentation;
• or decline to comment. A decision not to respond will be respected and will not, by itself, be interpreted as evidence supporting any allegation.
INVESTIGATIONS • DOCUMENTS • EVIDENCE Where appropriate, substantive responses received before publication will be incorporated into the investigation or reflected in an accompanying response section.
THE DEEP FILES Investigations • Documents • Evidence
