Are we headed for a blow-out in securities class-actions? Watch out for the warning signs, says the Wall Street Journal . Don't be be fooled by the decline in securities actions. The list might be smaller but there's now a massive proportion of law suits alleging misrepresentation in financial accounts. That would suggest that Sarbanes-Oxley will soon become the roadmap for class actions. The WSJ is for subscribers only so here are the best excerpts:

"So what then accounts for those 176 suits? Try . . . Sarbanes-Oxley. It appears the tort bar is now using the law's strict financial-reporting requirements as its latest excuse to sue. A whopping 89% of the suits alleged misrepresentations in financial documents, while 82% claimed false forward-looking statements. lawyers have certainly used financial documents as a reason to sue in the past, but this year's notable uptick in the number of suits filed that cite this cause of action suggests that the tort bar has found a whole new line of business.
"The real news here is that lawyers managed to drum up so many results-related suits in a year when the stock market was stable and corporate earnings were strong. Just wait for the next economic downturn, when class-action lawyers will be able to exploit Sarbox's new "internal controls" documentation as a roadmap. Our guess is that we have only begun to discover the ways in which Sarbox will be a trial-bar bonanza.

Now, use that as the context for the call by shareholder activists for Dana Corp. top executives and board of directors to be held accountable for the restatement of profits announced last week.

It's a point taken up Larry Ribstein. It's the "Sarbox time-bomb" says his blog. Ribstein, a professor of law at the University of Illinois, has a massive critique of SOX in his paper, Sarbanes-Oxley After Three Years. You can read it here.

Ribstein blasts SOX as "at best, an overreaction to Enron and related problems and, at worst, ineffective and unnecessary". What's needed instead, he says, is "humble regulation", something with a minimum standard for compliance but firms can still opt out as long as they explain why, a law that would take into account differences among firms and markets, and containing sunset provisions.

Sarbanes-Oxley is here to stay. But with the costs of compliance running high, flexibility is needed. With the threat of a tsunami of litigation ahead, that becomes even more critical.