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Investigation of November’s Trade Reversal on a transaction on Gemini Bitcoin exchange systems.
On November 14th, Gemini Bitcoin exchange personnel put in place a Trade Reversal on a transaction that happened few hours earlier on their systems. On November 20th, CoinTelegraph received a very upset email from Mike Miescke, one of the users affected in the transaction.
Correspondent of Cointelegraph spent almost 2 weeks to investigate this story. Here is the results.
To summarize the events, on November 13th, Mike placed a large Bitcoin buy market order to fill various limit prices up to $2,200 per Bitcoin. The operation was clearly atypical, as the average trading value was set around the $340 quota at that time.
With the transactions, Mike earned up to around 6 BTC for each Bitcoin sold.
Was that a typo from the buyer? Was that a slip on the mouse button? We can’t know, and it surely isn’t Mike’s business.
The transaction went through, there was no system malfunction, and everything looked fine.
To say it in other words: it was entirely the buyer’s error, as later confirmed by Gemini executives.
Despite this, few hours later the trade reversal happened.
Mike states that, according to the Gemini’s Terms Of License (TOL) document, they couldn’t do it.
Indeed, the fact that the transaction was completed meant that the buyer had funds, and the (supposed) system checks for abnormal orders didn’t block it either.
Mike explains that the TOL:
“Makes the user think that if they submit an abnormal market order that would pass a certain boundary that is abnormal, that it is instantly flagged and held before it will be processed allowing for addition confirmation from the staff. A certain scenario where this situation should kick in might be a user wants to limit buy for $220, but accidentally messes up and puts an extra zero. Regardless of how much bitcoin they wanted to buy or what type of trade (market/limit) they wanted to do, Gemini’s automated compliance checks should have kicked in because this trade would have bought bitcoin up and through an “undetermined or unknown to users” percentage threshold that could be considered “outside the boundary” of current trades or outside the normal trading range for that specific user and therefore subject for further review. In their terms of service, Gemini does not state this as a qualifying event for a trade reversal and assumes no liability to either party.”
In his public report, Mike explains in detail the events on the timeline, including contacts with the Gemini help desk, also lamenting long waiting times, and the fact that he never received an email signed by somebody: he was talking to “Gemini” in general. It’s like talking to a ghost, and in the end it’s a shield: you can’t blame anybody for false declarations or possible mistakes in the future.
Mike also mentions the fact that in a Gemini email was written that the event was completely due to user error, but in the TOL there’s no mention of actions due from Gemini in this case:
“This is the only section that informs a user of possible trade reversals [in case of system malfunction]. The Gemini trading mechanism/engine had no malfunction/disruption/lag/etc. at the time of the trade and the cause of orders being filled up to $2,200 was due to “customer error” as stated in Gemini’s email response. There have been people to agree with the actions of Gemini reversing the trade on grounds that this trade caused a “severe business disruption.” Or that “trade reversals happen all the time on the stock market” because they have to comply the SEC’s rules. However, I cannot seem to find documentation specific to trade reversals or clearly erroneous trades in a situation like this.”
“This is the only section that informs a user of possible trade reversals [in case of system malfunction]. The Gemini trading mechanism/engine had no malfunction/disruption/lag/etc. at the time of the trade and the cause of orders being filled up to $2,200 was due to “customer error” as stated in Gemini’s email response.
There have been people to agree with the actions of Gemini reversing the trade on grounds that this trade caused a “severe business disruption.” Or that “trade reversals happen all the time on the stock market” because they have to comply the SEC’s rules. However, I cannot seem to find documentation specific to trade reversals or clearly erroneous trades in a situation like this.”
It seems that all the possible options treated in the TOL wouldn’t have allowed Gemini to apply this trade reversal at all, and while they will probably be updating the document now, Mike could be on the right side in this case.
“It is certainly a complex issue. Firstly, as some have mentioned, there are numerous exclusions of liability on the part of Gemini which may be sufficient to limit its exposure if, in fact, the actions it has taken would otherwise give rise to a breach of contract or other claim. The law can also step in under certain situations where a mistake is clear and recognisable and promptly exploited, to void a contract. For example, there have been cases where sellers have accidentally made an offer by weight rather than per item, and where staff have mixed up prices, and the courts have, in some cases, not upheld a transaction. However, this is a slightly different situation, the question being whether the platform provider is at fault rather than the counterparties, and there is arguably scope in the terms for the exchange to reverse certain transactions (although, whether or not that applies here is not necessarily clear-cut).”
Additionally, the problem could get even more mazy thanks to international laws that could affect it:
“Laws also differ between countries and states, and each incident needs to be considered in that context. When it comes to financial services and other regulated industries, there are also swathes of specialised regulations which you need to bear in mind. So, it’s not possible to give you a firm view with a brief comment here. What is clear, is that this kind of incident will have a reputational impact. Some have argued that the Gemini user agreement was unclear when it comes to trade reversals, while others might say a sophisticated user would recognise this buy order as an error and it would be unreasonable to expect it to be filled. Whatever your take on it, there is potential for this to damage the brand, although in the long run it could be an opportunity to take steps to transparently increase trust in the platform, taking advantage of the exposure. Ultimately, businesses should take care to manage expectations, and to my mind, supposedly accidental orders like this are a risk worth mentioning explicitly to users in a relevant policy.”
It seems that at least the Gemini TOL is/was not transparent, or incomplete.
We contacted Gemini by email to let them say their point of view on the event. One representative answered, and we communicated to them info about the case. But then, after over one week of waiting and solicitations, we didn’t receive an answer.
From Mike’s story and these days of silence it really seems that Gemini personnel doesn’t have time or wish to treat people decently, or are they overburdened with work?
Anyway, apart from the legal proceeding, that have to finally decide about Mike’s happening, the final question here is moral: if there was an error from a buyer, would you allow to reverse the trade?
Watching it from another side, you will never stop people to make “games” to try to trick the systems, and it’s completely legit. Trading itself is, after all, about the most clever on the square: if you slip your finger on the mouse, you bring your error and its consequences to your home.
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