SoftBank Group said it has terminated a $3 billion tender offer for additional WeWork shares agreed last year with shareholders.
The move has drawn threats of legal action and plunging the floundering office space company further into crisis.
The tech investment giant said in statement that given its duty to its shareholders it could no longer proceed with the deal.
It cited criminal and civil probes into the startup, WeWork's failure to restructure a joint venture in China and the impact of the coronavirus pandemic for dropping the deal.
A special committee of WeWork's board said it was disappointed and is considering "all of its legal options, including litigation."
SoftBank's decision to rescind the offer means the Japanese firm is no longer obligated to proceed with a further $1.1 billion in debt financing for WeWork.
It also underscores the depth of the disarray at WeWork, which is undergoing a drastic restructuring and whose earnings are at risk as many countries impose orders to stay at home due to the pandemic.
The startup, which lost $1.25 billion in the third quarter, told investors last week that it had $4.4 billion in cash and cash commitments and would be able to weather the economic downturn.
The tender offer, which would have mostly benefited a select group of shareholders including ousted co-founder Adam Neumann, had been agreed in October as part of bailout plan by SoftBank after WeWork's IPO plans flopped.
Investors had been concerned about its losses and a business model that involves taking long-term leases and renting out spaces for a short term.
In November, sources said the New York State Attorney General was investigating WeWork, examining whether Neumann, indulged in self-dealing to enrich himself.
A spokeswoman for Neumann declined to comment at the time.
SoftBank said in its statement that there were "multiple, new, and significant" pending criminal and civil investigations in which authorities have also requested information about WeWork's financing activities and communications with investors.
SoftBank itself has been under growing financial strain, with souring tech bets bringing it under pressure from activist investor Elliott Management and pushing it into a radical pledge to raise $41 billion by selling down core assets to raise cash for share buybacks and to reduce debt.
A merger of its US wireless unit Sprint with T-Mobile US was completed this week, which will provide an undetermined gain to be booked in the quarter ending June and will reduce strains on its balance sheet.