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Gypsy Swaps


The term known as a gypsy swap is a method of raising capital that involves persuading existing shareholders to exchange their free-trading, common stock for a restricted one. Gypsy Swap is a transaction that has been in practice by stock promoters for many years.


The SEC's view is that Gypsy Swaps are a means to evade the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and violate Section 5 of the Securities Act. The SEC has established specific rules in the Securities Act under Section 5 that require any new stock transaction must be listed with the SEC.

The SEC has said unequivocally that Gypsy Swaps are infractions of Section 5 of the Securities Act of 1933, exposing all participants to monetary and other civil penalties, including disgorgement. It's important for issuers and investors to remember that a Gypsy Swap is only one way to avoid the registration requirements of Section 5 of the Securities Act. Any transaction in which the issuer supports the supply of free-trading shares to a new investor should be thoroughly inspected and assessed by counsel for potential breaches and alternative legal structures.

Issuers and investors should be cautious of transaction arrangements that appear to be acceptable on the surface but are actually a Gypsy Swap arrangement that violates securities rules.

If the SEC finds a violation of Section 5, it can impose ban orders, disgorgement, and civil penalties on all swap participants.

So, all in all, this method comes down to a series of transactions that are aimed to enhance capital for the business. In almost all situations, gypsy swaps are regarded as final attempts to evade liquidity limitations or bank contracts by indulging in some capital-raising methods that are “alternative”.

Government organizations are in charge of keeping an eye on gypsy swaps to make sure they don’t break any rules. 





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