Sale have accused Kris Chesney of displaying a "lack of integrity" following the collapse of his move to Edgeley Park.
The Sharks announced earlier this month that they had recruited the veteran flanker from French club Toulon on a two-year contract.
Executive director of sport Steve Diamond was delighted with the signing, hailing Chesney as "another piece in the jigsaw". But Diamond revealed on Thursday that Chesney, who he coached during his time at the helm of Saracens, will no longer be joining the club.
"I was clearly told by the agent and the player verbally that he agreed to join us and we announced it in a press release two days later," he said.
"I have now been told that the player had agreed to stay at Toulon. It's a lack of integrity from the player.
"I knew the player and thought he could have done a job for us, but it's not to be.
"It's not an embarrassment to the club, it's an embarrassment to the player.
"I know he's embarrassed and I've wished him well with the extra money that (Toulon director of rugby) Philippe Saint-Andre will pay him."