It appears discussion of this topic is not permitted outside BOTS, so I'll chime in here. What did the officer do wrong?
1. His situational awareness is so poor that he cannot correctly identify a bill he had in his hand. He is not competent to fulfill his professional responsibilities.
2. He is so arrogant that he was not deterred by the possibility that he was in error.
3. He acted without one of the biggest legal protections an officer usually has: reliance on the statement of a credible witness. Had he called it in and complained to another patrol unit, that officer would have had that protection. The complainant would still be an arrogant fool, though.
4. He used his official authority to try to gain a favorable result in a private dispute.
5. He used force, violence, and putting in fear to attempt to obtain property not his, to-wit: $10 that didn't belong to him. He is therefore a thief and a robber.
6. He forgot that he belongs to the badge, the badge doesn't belong to him.
7. He exhibited an appaling lack of judgment from start to finish.
Were I the chief prosecutor in that jurisdiction, I'd offer him the choice between resigning his job and his certification or being prosecuted for attempted armed robbery and aggravated battery (pepper sopray in the course of a robbery). He might not be convicted, but he wouldn;t show his behind quite like that again. This is no different from the occasional police officer brain fart that causes a guy to "investigate" his ex's new boyfriend, or to otherwise use his legal authority for personal gain. It is entirely unacceptable.