Yihao Ben Pu began working for Citadel in May 2010, helping to develop and improve the company's proprietary trading strategies.

To do this, he had access, through his office computer, to a folder stored on Citadel's servers that contained data related to "alphas", the building blocks of the hedge fund's automated electronic trading algorithms and strategies.

According to the complaint affidavit, in August Citadel's IT unit noticed that Pu had "an unusually large amount of data and programs" associated with his user profile and began investigating.

They discovered that Pu had configured and was running two virtual computers on his Citadel machine and had also downloaded several unauthorised programs, which allegedly allowed him to bypass security protocols and transfer files or data to an external storage device.

Pu was confronted the following day but insisted that he had only uploaded academic papers and music files from his Citadel computer to his mobile phone.

Citadel lawyers asked him to retain personal computers and storage devices while the investigation continued.

However, a friend of the accused has told agents that they helped Pu move equipment to the friend's apartment where he then "cleaned" the hard drives. Later that day Pu called the friend and asked them to "just dump everything" except for one particular hard drive. The friend threw the computer equipment in a canal.

However, the following day the friend gave the remaining hard drive to the office manager for his attorney and later showed a private forensic investigation firm where he threw the rest of the computer equipment. The next day a diver recovered six hard drives from the canal.

Authorities say that files were retrieved from the hardware containing Citadel alpha data and other proprietary information as well as computer source code that appeared to belong to a company that Pu worked for before Citadel.

The information led the private forensic firm to access a Web site containing text files, written in the months before Pu started working at Citadel, which allegedly appeared to outline a plan for him to obtain "execution data" from a computer network and use it to start a hedge fund in China.

Authorities believe that some of the files recovered from one of the hard drives found in the canal indicate that Pu was attempting to construct a trading strategy similar to the one used by Citadel.

The hard drive contained java code that appeared to be a fully functional automated trading system that used alpha data to calculate optimal trading times, used numerical identifiers for trading instruments identical to those assigned by Citadel and directed trading orders to an online trading account that Pu maintained.

It's thought that he was attempting to use the alpha data he stole from Citadel to reverse engineer the algorithms to trade currency futures to test the system he was creating.

The arrest comes around six weeks after Citadel was granted a temporary restraining order against Pu, although the hedge fund initially suspected him of planning to go to rival firm Teza Technologies.

Teza was set up by Mikhail Malyshev, former head of Citadel's high-frequency trading business. Citadel sued Malyshev in 2009 for breaching his non-compete agreement. He was also ordered to pay $2.2 million for wiping evidence from his home computer hard drives.

Pu has now been charged with theft of trade secrets and faces up to 10 years in jail and a $250,000 fine.