In your case, if all you truly did was shoot wanted ships, then one or more of those ships had to have been in an Empire-aligned faction. I have performed quite a bit of bounty hunting, and while on a couple occasions I noticed a rep down arrow, for the most part, I have gained reputation during bounty hunting. It is important to make sure that you focus on hunting just pirates. Verify the ship's faction in the Contacts tab of the Targets screen and/or that the ship has a cargo scanner installed.
So are you saying that if someone is Empire-aligned but also wanted, I can't kill him without losing reputation with the Empire? I thought that if someone is wanted, you won't lose reputation. If what you say it is true, then maybe that was the problem because sometimes I was ignoring the faction.
Also, I am not the only one thinking that you don't lose reputation:
http://www.reddit.com/r/EliteDangerous/comments/2r3kic/can_i_kill_it/
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