Richard, a senior member of the local government, was detected to have dumped up to HK$1.7m of stocks last month. However, there has been suspicion that the sale of the holdings and the downturn of the markets was caused by the outbreak of a rare disease emerged recently.

As Chairman of the Public Health Committee of the government, Richard receives nearly daily, briefings on threats of the disease to public security. A week after the first reported case of the disease, when the Governor assured the public that the disease would not be developing seriously, Richard sold HK$1.7m in stocks, including shares in two hotel groups. Several of the stocks that Richard sold, including the hotel and travel industry, have since lost value. Two weeks after this incident, he privately warned a group of wealthy constituents about the dire economic impact of the disease. Immediately after the private meeting, Bernard, one of the meeting participants, phoned his mother and asked her to sell all her shares in the airlines.

Without asking for reasons, she sold all the shares. On the same day, Bernard also said to his secretary Lisa,"A disasteris approaching and the economy will be shocked and shrinking a lot. Take care of yourinvestments!" Lisa sold her stocks in the next day.

Richard has said that he relied solely on publicly available news reports and denied wrongdoing.

(1) Advise Richard, Bernard's mother and Lisa whether their trading of stocks are legal. (20 marks)

(2) Why insider dealing should be illegal? Demonstrate your views. (5 marks) Use case law and relevant statutory provisions to support your views.