I have heard of it, because of internal politics in one particular organization. I think it was meant as a statement about (lack of) respect. IN the situation of which I'm aware, the demoted people (busted from black to white belt!) simply left and set up elsewhere; the organization lost their talents.
In that case they should have just expelled them.They had to know that the dropping from black to white belt would cause them to leave. Really kind of lame of the organization.Even if there was a lack of respect, there are better ways of resolving the conflict.