I've heard that too, but I find it hard to believe with anonymous grading. If you truly suspect it, I'd ask to see your exam grade and final grade--for instance if every prof bumped you down for participation. I really don't think it happens though.
Profs won't downgrade you, but deans will absolutely try to destroy your chances of transferring. The dean at my old school sent a nasty letter to the dean of admissions at my new school in the same envelope as my letter of good standing .