I would approach the player and ask which he or she prefers:
* We work together to come up with a fictionally plausible way for a medium gang to come under his control. These will be new people, untested. (Potentially bringing with them a whole new set of problems; they would act quite differently from the original gang.)
* The upgrade in size applies to the remnants of his gang: basically a non-existent gang, and this would bring it back to small. However, the "identity" of the gang remains this way (if there was some earned loyalty, connections, experience, skills, or similar). Key members holding it together, perhaps.
* Redo: choose a different advancement option instead, if you prefer.
My goal would be to give the player a wide scope of (meaningful) options, while still preserving the impact of the Gunlugger's actions. (If the Chopper just comes back with a bigger gang, it invalidates the Gunlugger's choices or accomplishment, making her actions moot.)