According to the U.S. Department of Justice, Xu resigned from IBM in May of 2014, but he allegedly took the code for a clustered file system with him. The system is meant to facilitate "faster computer performance by coordinating work among multiple servers," and is only valuable to IBM if the code is kept in-house. After leaving IBM, however, Xu tried to sell the code to two undercover law enforcement agents posing as an investor and a project manager who were trying to launch a data storage company.

Over the course of about six months in 2015, Xu demonstrated the code to the two undercover officers, who confirmed it was a "functioning copy" of IBM's own software. Xu was finally arrested at a hotel in White Plains, New York last December after he openly admitted to the undercover agents that he used the code to build his own version of IBM's software that he could sell to clients. In his discussions with the law enforcement officers, he even stated that he had concealed a block of code identifying it as copyrighted worked owned by IBM.