Both by Shred's account and Y Combinator's, Shred has repeatedly offered to submit their code for third-party review to see if it is copied from whatever Smule thinks it's copied from, but Smule has declined every time ("claiming, although they most certainly know better, that Shred could have successfully obfuscated their code making such a review useless," per Geoff Ralston's post).
"If you think that its simply a case of not using your old employers code then you're naive".
A third-party code review would do little or nothing to prove whether Shred have "stolen" anything.
Suppose you and I both wrote our own authentication systems (the horror!) - I'm sure we'd create much the same functionality wise but our code would probably look vastly different.
The code base is not important here.
Smule is likely arguing that the IP was created whilst the founders were under their employment and thus belongs to them as a company.
Its a shitty practise but its very much the norm and one of the advantages of consulting over employment.