The opinion of the court was delivered by: William M. Skretny Chief Judge United States District Court
Presently before this Court are pro se Defendant Steven Blumhagen's ("Blumhagen") Motion to Dismiss and Plaintiff Securities and Exchange Commission's ("the Commission") Motion for Partial Summary Judgment.*fn1 For the following reasons, Blumhagen's motion is denied and the Commission's motion is granted.
On May 31, 2000, the Commission filed its complaint in this action alleging that Tee to Green Golf Parks Inc., Blumhagen, Susan Blumhagen (Blumhagen's wife), and four other defendants conducted a fraudulent scheme to sell promissory notes through numerous misrepresentations and falsehoods and then misappropriated the proceeds from the sale of those notes. (Complaint, Docket No. 1.) The Commission's claims against the four other defendants - David E. Trotter, Hanover Financial Group, Inc., Donald W. Owens, and Financial Security Group Insurance Agency, Inc. - have been resolved. Tee to Green, Blumhagen, and Susan Blumhagen are the only remaining defendants.
The Commission alleges that Tee to Green and Blumhagen violated federal securities laws, specifically 15 U.S.C. §§ 77e(a) and 77e(c), 77q(a), 78j(b) and 17 C.F.R. § 240.10b-5. (Id. at ¶¶ 61-73.) It further alleges, that Susan Blumhagen violated 15 U.S.C. §§ 77q(a) and 78j(b), and 17 C.F.R. § 240.10b-5, or alternatively, aided and abetted the violation of federal securities laws in violation of 15 U.S.C.78t(e). (Id. at ¶¶ 61-69.)
Blumhagen was president of Tee to Green. (Commission's Statement,*fn2 Docket No. 153, ¶¶ 4(a), 14.) He was actively involved in the offer and sale of the notes and hired David Trotter to oversee the offering. (Id. at ¶¶ 7.) Susan Blumhagen also worked at Tee to Green. She performed ministerial duties with respect to the notes, including writing and remitting checks, and maintained records relating to the notes. (Id. at 15.) She also participated in the misuse of investor funds by authorizing corporate resolutions to distribute in excess of $1.5 million to Blumhagen. (Id. at 17.)
In 1997, Tee to Green, which had a golf practice facility in Buffalo, N.Y., offered and sold nearly $12 million in promissory notes to at least 320 investors in various states, including Ohio, Oregon, North Carolina, South Carolina, Mississippi, and Pennsylvania. (Id. at ¶ 6.)The notes, which were not registered, offered purchasers a ten percent return on their investment, with repayment promised in nine months. (Id. at ¶¶ 7, 9.) When a sales agent sold a note, he or she notified Tee to Green, which then issued the notes, signed by Blumhagen, directly to the investors. (Id. at ¶ 8.) Sales agents earned a commission on the sale of each note. Of the $12 million raised, Tee to Green paid sales agents approximately $1.8 million in commissions. (Id. at ¶ 8.)
The defendants used multiple misrepresentations and material omissions to induce investors to purchase the notes. Most glaringly, the offering materials - an offering summary, brochure, and application - falsely represented that the notes were bonded, insured, and reinsured. (Id. at ¶¶ 7, 11.) In addition, the materials failed to disclose that a significant portion of the proceeds from the offering would be used to compensate the sales agents. (Id. at ¶ 12.)
Moreover, the offering materials stated that the proceeds raised would be used by Tee to Green for the "Tee to Green Golf Parks" project. (Id. at 13.) This, however, was not entirely the case. The Blumhagens used proceeds from the offering for personal and unrelated business expenses, including (1) investing $900,000 in a Florida insurance company, (2) investing $750,000 in an offshore bank in Barbados, (3) paying more than $1.5 million to Blumhagen as "compensation," (4) using $100,000 to cover margin calls in the Blumhagens' personal securities account, and (5) using $200,000 to finance the Blumhagens' friend's real estate deal. (Id. at 13.) None of these expenditures were disclosed to the investors. (Id. at 13.)
In the end, Tee to Green never repaid the notes, nor were the notes insured, thus resulting in more than $10 million in loss to the investors.(Id. at 18.)
B. The Criminal Proceedings
On February 28, 2003, a federal grand jury indicted the Blumhagens for the conduct discussed above. (See United States v. Steven Blumhagen, et al., 03-CR-56S.) After initial discovery and pretrial motions, Blumhagen pled guilty on April 18, 2006, to one count of mail fraud and one count of conspiracy. The government then dismissed the criminal charges against Susan Blumhagen at that time. On December 15, 2006, this Court effectively sentenced Blumhagen to serve 57 months of incarceration and to pay restitution jointly and severally with Trotter in the amount of $10,731,240.97.
In his plea agreement, and again during the entry of the plea, Blumhagen admitted to engaging in the following conduct, which formed the factual basis for his plea:
 From in or about 1993 through 2000, the defendant, STEVEN D. BLUMHAGEN, was the president of Tee to Green Golf Parks, Inc. (Tee to Green), located in the Western District of New York. As president, defendant BLUMHAGEN controlled the day-to-day operations of Tee to Green and was intimately involved in the sale of Tee to Green promissory notes. The promissory notes reflected loans to Tee to Green. The defendant caused these notes to be marketed upon representations that they were bonded, insured and re-insured, but he never obtained bonding and insurance for the notes. Noteholders relied upon the representation that the Tee to Green notes were bonded and insured in order to protect them from loss on their loans to Tee to Green.
 From in or about January, 1997 to January, 1998 in the Western District of New York and elsewhere, defendant BLUMHAGEN, with David Trotter and others who knew that the Tee to Green notes were not bonded, insured or re-insured, agreed to and did cause Tee to Green notes to be marketed to numerous people upon the representation that the Tee to Green notes were bonded, insured and re-insured. As noted above, this representation was not true, and the defendant, Trotter, and others knew that it was not true.
 Responding to the offers by defendants BLUMHAGEN, 4 Trotter, and others to purchase the Tee to Green notes, noteholders mailed applications for the notes, and checks representing payment for the notes. These mailings went to Tee to Green in the Western District of New York. One such mailing was from Ralph Hughes who mailed a check to Tee to Green in the amount of $128,062.49.
 The deposits of these checks into the Tee to Green bank account were overt acts in furtherance of the agreement to sell the Tee to Green notes as if they were bonded, insured, and re-insured when they were not. One such overt act occurred February 5, 1997, which was the deposit of the aforementioned Ralph Hughes check.
 After receiving the applications and checks for the Tee to Green notes, the defendant and others caused the Tee to Green notes to be mailed from the Western District of New York to numerous noteholders via the United States Mail. Specifically, on or about December 5, 1997, the defendant used, or caused to be used, the United States mail ...