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Swan's appearance at a $200 per-head fundraiser, which was attended by Gatto at his brother's pizza restaurant Gatto Nero created a stir on Thursday morning.
However Gatto came to Swan's defence on ABC Radio, saying he didn't understand the media interest.
"I mean there's nothing in it. Dane Swan is a real champion of a man - he spent time with elderly people there, with the children," Gatto said.
"There's nothing in it, I mean he's there doing his best trying to get a living or whatever, and I can't understand why they carry on with all this nonsense."
But speaking to 3AW, Mr Lay said the Magpies and the AFL should be worried.
"I suspect it's just not a good look is it, when Mick Gatto is giving character references as being good blokes when they're associated with a pretty important brand in Melbourne," Mr Lay said.
"There's plenty on the record about Mick Gatto...I think we've all got a pretty good understanding about Mick Gatto and how he makes his living."
Mick Gatto says the media has over-reacted. Photo: Getty
It's another incident involving a member of Collingwood's so-called 'Rat Pack' and an underworld figure, and the Magpies administration was quick to defuse the situation to avoid another controversy like Alan Didak's infamous dealings with jailed bikie Christopher Wayne Hudson in 2007.
Magpies president Eddie McGuire and chief executive Gary Pert defended Swan, with both saying he did nothing wrong and there was no issue.
The AFL is yet to make a statement, but it's likely they will not be impressed after Richmond's Jake King was strongly urged not to associate with former Bandido Toby Mitchell earlier this year.