First, let me preface this by saying that not all SEO agencies engaged in using phoney paid linking practices to boost a site in the rankings. However, many did and still do, including some of the most prominent SEO firms out there.
As we learned from the Penguin update, Google has cracked down on sites with spammy or low-quality links and will continue to get even better at finding and penalizing them. As Matt Cutts of Google says, "The objective is not to make your links appear natural; the objective is that your links are natural."
When you open an email or check your webmaster tools account and see a message like this: "Google has detected a pattern of unnatural artificial, deceptive or manipulative links pointing to pages on this site" you know you're in trouble and it's time to fire your SEO agency ASAP.
Add to that the fact that more and more marketers are realizing that the best SEO of all is natural SEO created by an authoritative site, and it looks like SEO firms may be in trouble.
However, there is a very valuable service they can offer - at least for the time being - and that's to remove the bad links they created in the first place.
If you type 'remove bad links' into a search engine, you'll discover at least several businesses are already performing this service. Some even guarantee they can get your website's penalties lifted every time, but don't be fooled. According to Google, removing the bad links is only the first step. You'll need to "regain trust" over time before your rankings will once again improve.
And what if your site was the victim of a competitor's malicious activity in buying bad links to your site? Sorry, according to Google you're in the very same boat as anyone who purposely purchased spammy links.