This is the practice where your competitor hires someone to put links to your website from linkfarms. Linkfarms are sites that get paid to provide links. However, most search engines have already blacklisted these sites, and it includes the sites they link to.
So once your site is listed in one of these blacklisted sites, it gets affected as well — which is the aim of your competitor. This is more clearly articulated by nelife.
To prevent this from happening to your site. You have to be vigilant. Examine where your inbound links are coming from and have them removed if these are from such black listed sites.