NEW YORK (CNN/Money) - Arthur Andersen LLP has rejected a plea bargain for its role in the Enron Corp. case, opening the accounting firm to a possible criminal indictment for obstruction of justice and placing its survival in doubt.

Andersen sent a letter, prepared by its law firm, to the Justice Department late Wednesday saying it would not plead guilty for its role in the shredding of documents at the now bankrupt energy trader. The Chicago-based accounting firm, which is also trying to settle shareholder lawsuits against it, balked at the quick deadline it was given to decide whether to plead guilty or face an indictment.

"The department proposes an action that could destroy the firm, taking the livelihoods of thousands of innocent Andersen employees and retirees; that will substantially reduce any possibility that claimants against the firm will obtain a recovery; and that will greatly diminish the chance for necessary reform of the accounting profession," the law firm's letter said.

The DOJ has received the letter and will hold a press conference at 4:00 p.m. at which it is expected to announce an indictment against the firm.

Andersen still retained hope Thursday that the DOJ would respond with lesser charges, a source familiar with the negotiations told CNN/Money.

But signs of an indictment loomed closer Thursday and the Justice Department has already convened a grand jury in Houston. So far no Andersen employees have been asked to testify, according to attorney Rusty Hardin, who represents Andersen in Houston. "Anderson should at least be given the chance to give their side to a grand jury before any charges are brought," he said.

An indictment would be tantamount to a conviction in the business world, Hardin said.

Andersen is also considering filing for bankruptcy protection as a way to siphon off the firm's liabilities and make the company more attractive as a candidate, a source with familiar with the discussions told CNNfn. But Andersen disputed the suggestions and vowed to defend itself against any baseless or unjust claims. "There [are] absolutely no plans to file for bankruptcy," spokesman Charlie Leonard said. "This is a $4 billion enterprise in the United States and it will remain in business serving clients despite defections."

Andersen has come under considerable scrutiny for its role in Enron's collapse. The Houston-based energy trader, which filed the largest bankruptcy in United States history last December, allegedly used off-the-books partnerships to inflate profits and hide nearly $1 billion in debt. Andersen, as Enron's auditor, signed off on the company's financial statements. Later, the accounting firm admitted to shredding Enron documents as a probe of an investigation by the Securities and Exchange Commission was made public.

A guilty plea by Andersen, once the most powerful global accounting firm, would place the firm's survival in grave jeopardy and likely cause an exodus of its 2,300 clients. Andersen already has lost a string of high-profile clients as companies send out proxy statements seeking shareholder approval of their independent auditor.

Consumer finance company Household International (HI: Research, Estimates) Wednesday became the latest Andersen customer to switch, following FedEx Corp. (FDX: Research, Estimates), Delta Air Lines (DAL: Research, Estimates), drugmaker Merck & Co. (MRK: Research, Estimates) and mortgage financing company Freddie Mac (FRE: Research, Estimates) out the door.

In its letter, prepared by law firm Mayer Brown Rowe and Maw, Andersen objected to the fact that it was not allowed to make its case to the grand jury. Andersen instead offered to agree to the appointment of a special monitor to oversee compliance with new document retention policy in return for deferral of prosecution.

The accounting firm also proposed to undertake all the reforms suggested by former Federal Reserve Chairman Paul Volcker, who called for a split of Andersen's audit and consulting units.

The firm also advocated action by the SEC be directed at Andersen's Houston office. Andersen also offered to further discipline all individuals-at whatever level -- who were responsible for shredding documents. It argued that while several Andersen partners and employees "unquestionably exercised poor judgment, a criminal prosecution against the entire firm for obstruction of justice would be both factually and legally baseless."

Andersen executives have admitted that documents were shredded but have attempted to place the blame on employees in Houston, where Enron is based, while claiming that senior executives at its Chicago headquarters knew nothing .

But the New York Times reported Thursday that Andersen lawyers disclosed to the Justice Department that the document shredding at Andersen was more widespread than previously believed.

The Times said lawyers informed prosecutors that partners with Andersen's Houston office, which shredded thousands of Enron records last fall, also directed the destruction of documents related to Enron in at least two other offices. But the paper said an internal Andersen investigation found no evidence its top executives knew about the shredding.

Andersen had been in talks with Justice officials about a possible plea bargain, facing a Thursday deadline for the plea or a possible indictment. The decision of the Big Five accounting firm to take a tougher stand comes as talks to possibly sell the company to either Deloitte Touche Tohmatsu or Ernst & Young collapsed Wednesday, leaving only KPMG as a potential buyer. PricewaterhouseCoopers, the other Big Five firm, has not been considered a bidder.

As the merger talks falter, the SEC apparently is preparing contingency plans in case of Anderson's collapse. The Times reported Thursday that the SEC has been talking to the other Big Five firms about procedures to handle the virtually simultaneous transfer of the required auditing work for almost 20 percent of the nation's publicly traded companies now using Andersen.

Andersen executives have admitted they made mistakes approving some accounting practices at Enron that eventually led to a restatement of earnings and the bankruptcy filing last fall at what had been the nation's seventh-largest company. But Andersen executives have insisted in testimony before Congress that the bankruptcy was an Enron problem, and that Andersen had not had access to all information it needed from the company.

Daniel Sullivan, litigation partner with the law firm Salans, told CNNmoney Morning Thursday that it would have been difficult for Andersen to reach an agreement with Justice so quickly. A guilty plea for the entire firm would have hurt its ability to conduct business more than a company in another business. But he said that having the issue pending will make a sale to another major accounting firm more difficult because of the uncertainty.

"The problem is that no one is certain of all the implications," he said. "If there's any possibility that bankruptcy court becomes involved, that may give added safety. But in the last analysis there's always going to be some risk."

St. John University law professor Anthony Sabine told CNNfn's Before Hours that Thursday will be a crucial day for Andersen's future, based on the Justice Department's reaction to the firm's rejection of a plea.

"There are a number of distinct possibilities ranging from the very painful to the absolutely devastating," he said. He suggested the government could delay action to try to force further negotiations, or grant immunity to mid-level Andersen executives to try to gain cooperation against the firm. He said an indictment against the entire firm would be the devastating option.

"If I was Arthur Andersen, I'd be very afraid of the future," he said. "If I'm a Deloitte Touche, if I'm a PricewaterhouseCoopers, I'm going to sit back and let them implode, collapse under their own weight and just cherry-pick off their best clients, their best talent. It could be that Arthur Andersen is already down the slippery slope and there may be no turning back. Their survival is very much in question."

The SEC declined comment.