I don't think that Sony would just cancel a game and layoff people without a justifiable reason. Maybe it's because Ascension didn't do well but it might also be that the new IP isn't working out so rather than release something they're not happy with they're willing to cut it loose. We won't know what happened behind the scenes unless people from the inside talk. This is just pure speculation at this point. As always though, it sucks to hear people are out of a job.
The doubt the reason has much to do with game sales. Sony is in a bad way, yesterday they announced they are closing 65% of the stores they have in the US. 21 of the 30 stores are closing. I'm sure this studio closing, the stores closing, the HDTV restructuring and the selling of the PC division is just a way Sony is trying to stay afloat. I wouldn't be surprised if more closing are on their way.
Just to be clear, Sony Santa Monica as a studio is not closing, they just cancelled a new IP and laid off a bunch of people.
Oh, but my point still stands that this is an ongoing sweeping layoff/closure model going through Sony right now. They have no money and just today they announced they are selling off their founding HQ in Tokyo to get a much needed cash injection. Last year they sold off there New York HQ. Sony is running out of stuff to sell.