A gypsy swap represents a way of raising capital that entails encouraging existing stockholders to swap their free trading common stock into restricted stock. This kind of transaction-gypsy swap, stock promoters have been using for a long period of time.
Thus to the Securities and Exchange Commission, gypsy swaps are a method of evading the Securities Act of 1933, and violate Section 5 of the Securities Act. Both investors and issuers should be aware of transactions that seem to be legal on the surface but in effect are gypsy swap transactions that are illegal under securities regulations.
The SEC has stated categorically that gypsy swaps are breaches of Section 5 of the Securities Act, and that all parties are subject to monetary and other civil penalties, which also include disgorgement. It’s crucial for investors and issuers to note that a gypsy swap is only one approach to get around Section 5 of the Securities Act’s registration obligations. Any transaction in which the issuer enables the provision of free-trading shares to a new investor should be carefully analyzed and evaluated by counsel for possible breaches and alternative legal forms.
Government agencies are responsible for supervising gypsy swaps to assure they do not violate any laws.
When participating in a gypsy swap, there are a few factors to bear in mind from the trader’s perspective, such as obvious red signals.
Overall, this strategy consists of a sequence of transactions aimed at increasing money for the company. But what is the price of risking, and should you ever get involved in such a transaction?!
An overall conclusion is that every participant should follow the guidelines set forth by the SEC and FINRA in order to hold and trade under the rules.
