One man isn’t happy with Cameron and Tyler Winklevoss, the entrepreneurs known for having sued Mark Zuckerberg for allegedly stealing their idea.
The problem centers on the Winklevoss’ Bitcoin exchange Gemini, where on evening of November 13th a Gemini exchange user placed a large bitcoin buy order filling price limits towards $2,200 per bitcoins.
The Bitcoin exchange reversed the trades.
Gemini cited a “customer error” which “[met] our criteria for reversal as defined in our terms or service.”
“I immediately responded to this email stating I do not accept their statement of reversal, demanded my account be restored to it’s rightful balance as laid out in their terms of service, and referenced their terms of service that ‘customer error’ is NOT a valid reason to reverse transactions,” Mike Miescke wrote in a written statement to Bitcoin press outlets. Gemini published a blog post and wrote affected Users.
Dear User — I am writing to let you know that we recently published a blog post (you can access it by clicking on the ‘blog’ link on the top right of the Gemini homepage) to address the questions you have raised. We understand that you may not agree with our decision to reverse this trade. We appreciate you taking the time to voice your concerns, and hopefully we have addressed them to your satisfaction. We thank you for becoming a customer of Gemini in the first place, and do hope that you make the decision to trade on our platform again in the future.
Gemini Customer Support”
What does the Gemini user agreement state? In the “Gemini Information Accuracy, Liability and Risks” section, the company states:
“While we strive to provide you with accurate information, we cannot guarantee that information on Gemini will always be accurate. As a result, we are not liable to you, any other person or any institution:
- for any transaction that is completed;
- for the price at which you buy or sell Digital Assets on Gemini;”
In the “Exchange Operations” section, Gemini states:
“Orders you place on Gemini during regular operation will normally be executed if the market price is at a point within the limits of your Order.
We reserve the right to require all Orders to pass automated compliance checks. If your Order is flagged for review by any of these checks or if it meets certain defined criteria, it may require our manual review and approval. We will try to review such Orders on a timely basis, but we are not liable for any delays. If at any time you are in any doubt about the status of your Order you can view your Order status on Gemini. We may cancel any Order flagged for review that is not approved manually.
We may require you to confirm your Order request via telephone or by other forms of authentication prior to execution it if it is deemed suspicious.”
In the “Sophisticated Investing” section:
“You acknowledge and agree that by using Gemini and entering Orders, you have sufficient knowledge to make such Orders. You are responsible for making sure that any Orders entered on Gemini are accurate and intentional. We may, in some cases, and at our discretion, require secondary electronic, verbal, written or other confirmation before acting if your account activity is outside of your normal range of activities.”
And lastly, in the “System Disruptions or Malfunctions” section:
“We reserve the right to reverse and/or cancel one or more Orders in the event of (i) any disruption or malfunction in the operation of any electronic communications, trading facilities, storage facilities, recording mechanisms or other components of or integral to Gemini or of Digital Assets, or (ii) any other severe business disruption to Gemini, its systems or Digital Assets, where the nullification of transactions may be necessary for the maintenance of a fair and orderly market or the protection of you and the public interest. If such a disruption or malfunction occurs, our Chief Executive Officer, President and Chief Compliance Officer (or their designees), or others as may be designated by our Board of Managers, may review such Orders and declare such Orders arising out of the operation of Gemini during such period null and void. Absent extraordinary circumstances, any such action of the Chief Executive Officer, President and Chief Compliance Officer (or their designees), or the designees of the Board of Managers, pursuant to this paragraph will be taken within two (2) business days of detection of the erroneous transaction or disruption or malfunction. We will notify you if you are involved in any such event as soon as practicable.”
Cameron Winklevoss pointed to the firm’s user agreement to make the opposite point of Miescke: “We retain the right to enter pricing, order, and reconciliation adjustments as necessary and appropriate.”
A debate ensued in popular Bitcoin forums where some people argued that Gemini reversed this trade on the account that it could have caused a “severe business disruption.”
On the stock market, cancelled trades seem to be a rule more than an exception, as 96.% of trades placed in the US stock market are cancelled, according to the US Securities & Exchange Commission.
Miescke claims customer bias. Bitcoin exchange BitMex penned a blog post on the Gemini situation expressing similar concern.
Miescke believes Gemini did not have the proper rules in place to protect sellers nor did the trading engine include slippage protections coded into their system “like they state in their terms of service.” He believes the trade should have gone through.
“If the trade went through, I believe that individual customer who bought the order book up to $2,200 would have a strong reason to file a lawsuit,” Miescke said. “Written in their terms of service, Gemini says that all orders pass automated checks and may be flagged if the order meets certain criteria. They do not list the criteria, but you would assume that ‘fat finger’ orders that cause massive slippage would be easily flagged.”
How do you think Gemini should have handled the situation?