Of all the great things Civil 3D can do I have yet to find a way to easily scale a surface vertically. So I came up with this work around.

Depending on the size of the data set these steps could take a very long time. In particular the 1/9" data downloaded from "USGS seamless" website is particularly time consuming to where each step could take 10-15 min. I have found that minimizing AutoCAD Civil 3d while it is thinking speeds the process up a little.

1. Once the surface is created from the DEM or other data, create a style that only displays the triangles of the surface and vertically exaggerates the triangles. (This can be done by going to the display tab in the style and turning all (but the triangle) light bulbs off and also clicking on the "triangles" tab and modifying the vertical exaggeration.)
2. Click on the surface to get the ribbon to display surface commands.
3. Click on the extract data button.
   
4. Make sure the triangles box is selected - Click ok
5. Now create a new surface in the prospector
   
6. Define the surface by autocad object, 3d faces.
   
7. The new surface should now been scaled vertically and you can get on with your design.
   

I hope this helped.