Getting reported for link spam - effect?

So dispite my nickname here I am not a complete beginner in regards to SEO but I chose that nickname anyway as I am having some confusion as to why my site fell down.

I ranked nr 4 for a very competitive keyword, think 2.5 years of constant updating, linksbuilding and studying seo. And then a google update occured and I fell down on four major keywords, but just those four and no other keywords which is why I believe i was reported for linkspam.

Sure I buy links, but its the only way to rank and the competition definently does it. Could I have been penalized because my site had a manual review done on it from google? And this because I got reported?

Now looking at my backlinks, I did buy quite a bit, one of them a strong sitewide link but that alone should not suddenly take a site that in the last month alone went from pos 6 to 4 and then push it down to position 14.

I am confused, but at the same time this happened, Mathew Cutts made a post regarding reporting link spams here mattcutts.xcom/blog/calling-for-link-spam-reports

I may be paranoid, but competition for these keywords is fierce and I know some of the competition reads this.

What do you think? Sabotage or just too many links?