Third District Judge Robin Reese said Thursday that prosecutors didn't work hard enough to make restitution part of the deal.
Marc Jenson of Nimbus Capital Partners is charged with failing to repay investors millions of dollars from the failed purchase of Brunswick Corp.'s Mongoose bicycle division.
Jenson was raising money for another businessman who had hoped to sell bikes to the Mormon church for use by missionaries.
Prosecutors say Jenson was still raising money, even after Brunswick sold Mongoose to Pacific Cycle Inc. of Madison, Wis.
The judge said the plea deal included only the promise of repayment for victims.
"I just don't feel comfortable with it," said Reese, who added that Jenson was "still able to live a lavish lifestyle."
The plea deal called for securities fraud charges to be dropped against Jenson after three years if he satisfied a number of civil lawsuits filed against him.
Retired lawyer Morty Ebeling he lost $2.5 million on the deal. Others lost millions more.
"That $2.5 million was everything for me," Ebeling said. "I'm down to nubs."
A trial is set for May 27. Jenson he doesn't owe any money and "the victims aren't what they appear to be."
In civil litigation tied to the bike deal, Jenson has said the business partner owes the money.
"Our plea agreement with the state of Utah basically left that issue to be resolved with the civil courts," said Rebecca Hyde, one of Jenson's attorneys. "Judge Reese wasn't willing to allow us to leave it up to the civil courts."
Another part of the plea agreement would have limited Jenson's business dealings - with an exception for the redevelopment of the defunct Elk Meadows ski area, 200 miles south of Salt Lake City.
Jenson is one of the people behind the Mount Holly Club, a gated community that's supposed to feature million-dollar homes and a Jack Nicklaus-commissioned golf course. To join, members would pay hefty upfront and annual fees and buy a building lot.
Construction could start in summer.