A deal between the two sides would have resulted in a limited admission of guilt by Andersen and a deferred prosecution agreement -- in effect placing Andersen on probation for three years. Since no deal was met, Arthur Andersen will battle one count of obstruction-of-justice in court May 6.

Federal prosecutors appear to have a strong case. David Duncan, who Andersen alleges destructed the Enron-related documents without company permission, admitted to destroying the records, but said other Andersen partners and employees took part in the shredding. He has agreed to cooperate with federal prosecutors in trial, a serious threat to Andersen's defense.

Paul Volcker, serving as Andersen's consultant in overhauling the firm, said Andersen's failure to strike a deal with the Justice Department has turned his overhaul proposal into "a lame horse," reported the Wall Street Journal. Volcker's plan hinged on whether or not the indictment was dropped.

Andersen's woes do not stop at the Enron fiasco. The accounting firm also faces a trial this month in Arizona over the settlement with the Arizona Attorney General's office for signing off on audits for crooked investments run by the Baptist Foundation of Arizona. Andersen agreed to settle civil suits for $217 million, but its insurer later declined to pay.

In addition, Andersen is under fire for its audits of Global Crossing, the fourth-largest bankruptcy of all time.

To date, Andersen has lost approximately 10 percent of its clients, including recent defections Halliburton, John Wiley & Sons, Weyerhaeuser and Estee Lauder.

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