Up until about 2-3 months ago I was only aware of two real Google penalties. The outright ban, where a site will be completely removed from the Google index and the minus 40-60 penalty.
About 2-3 months ago I started talking to a local company about helping them with their SEO. It looked like they wanted to do something and they were just thinking things over. Next the guy called me up and said that all of his Google rankings had disappeared and that the only thing his site was coming up for was the name. The site came up no.1 for his two word company name and no.1 for the domain. However all of the other positions the site had with the homepage, albeit not good ones had disappeared. Even when I tried searching for some unique text off the homepage in quotes it did not come up. So I asked the guy a couple of questions, you know – have you made any changes recently that could have caused this to happen? etc. The guy said that the only thing he could think of was that he had placed a load of area names on the bottom of the homepage in tiny text so that no body could see. I said “bingo, that is why the site is penalised, you put hidden text on”. He got rid of the hidden text, I told him what to say to Google on the reinstatement request and his site was back to where it was previously within a week.
Again about 2-3 months ago I started to work on this new site and I came up with a temporary solution to get some link juice into the category pages. This was totally my fault and looking back it was really bad and stupid. This is the only time I have ever got a client penalised by any search engine. The site had about 130 categories and I placed an SEO friendly drop down menu on the homepage and the rest of the pages to the 130 categories. I saw some progress with the rankings initially, but around a week later the site got hit with the exact same penalty, this time it was not just the homepage that got hit, it was all of the pages where I had placed the drop down menu. It was ranking for the company name with and without Ltd, the domain and that was it. I was scared as hell, I had to tell this guy that I had got his site penalised. I spoke to the owner about it and he was so cool you have no idea, it is a good job I choose my clients carefully. Now technically I had done nothing wrong, but it looked seriously spammy – I showed it to a friend and he said “no wonder you got penalised, you’ve got hidden text, hidden links and keyword stuffing” (not technically right, but that is what it looked like). I am still waiting for the developers to finish the new site on this one. Once the site is finished I will ask the owner to send a reinstatement request, hopefully Google will forgive me for being so aggressive.
Weather this is a new penalty or not I do not know. It is different to the minus penalty because when pages are hit they do not show up anywhere, no matter what. It is different to the outright ban because affected sites stay in the index and rank for their own names. Have any of you ever seen a penalty like this? It can definitely be applied for hidden text, it could possibly be applied for hidden links or keyword stuffing.