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Most Likely Cause Is....
Over optimization of anchor text.
I work for a large adult network and whenever one of our sites gets hit by a penalty it is due to over optimization of anchor text 90% of the time.
This is usually due to anchor text links sitewide. Go back and contact all the webmasters that you bought links on their sites and ask them to change the link to the home page only, if they can't then change the link to a URL of your site.
Then go back and look at your link profile, do you have links only going to your home page, if so that needs to change? Do you have enough nofollow links? Are all of your links anchors or are they diversified with images, frames, URLs, and nofollows?
I haven't seen your site so its hard to tell, but if I were a betting man I'd say it was due to what I said above.
If you have any questions or want me to look over your site, send me a message.
Good luck.
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