I was under the impression that "co-founder" carried a lot more weight than CTO; is this not the case? My gut feeling was that, if I were in the co-founder's shoes, I'd fire the CTO immediately.
Hmm, I'm sure infighting is bad, but often enough individuals do have skills and in particular experience with the setup and/or code and/or business contacts that the startup has made that you're not going to find a replacement nor train one without losing lots of time and money. Certainly that's an avoidable risk with effort, but I'm pretty sure that some level of infighting may be less risky than losing certain individuals.
So, if that would tank the company noone gets nothing. If he doesn't fire the CTO, he gets nothing and company may or may not get anything. To me, pretty clear situation what would I do. I would risk the company to save myself from certain loose.