Judge: Fraud case vs. Xapo CEO can proceed

Silicon Valley entrepreneur Wences Casares has lost his motion to dismiss a fraud lawsuit brought by former employer LifeLock (LOCK), thus setting the stage for discovery and a possible trial that could cause troubles for one of the country’s hottest bitcoin startups.

Casares currently is founder and CEO of Xapo, a bitcoin storage and wallet company that has raised $40 million and compiled an advisory board that includes former U.S. Treasury Secretary Larry Summers. He previously ran a digital wallet company called Lemon, which was acquired in December 2013 by Lifelock, after which Casares and most of the Lemon team became LifeLock employees.

What happened next is the crux of a lawsuit first reported on by Fortune last month. LifeLock claims that Casares would go on to form Xapo by “using a product developed by Lemon employees, in Lemon’s facilities, on Lemon’s computers, and on Lemon’s dime.” Casares argues that LifeLock didn’t originally want any of Lemon’s bitcoin-related assets, and that he subsequently secured letters from a senior LifeLock executive to that effect.

Casares has not yet formally responded to the LifeLock lawsuit, but he did file a demurrer — the similar to a motion to dismiss, in which defendants don’t actually refute plaintiff allegations — that was largely based on the aforementioned letters. California Superior Court Judge Peter Kirwan last week overruled the demurrer on all four of LifeLock’s causes of action, and told Cesares that he must reply to the complaint by July 24.

A LifeLock spokeswoman said that the company is “pleased with the ruling but can’t comment further on pending litigation.” A representative for Casares did not return a request for comment.

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