Investigators said Yupeng Deng, also known as David Deng, recruited fellow Chinese nationals for the bogus unit, promising them they could become American citizens.
Deng gave himself the title of "Supreme Commander" of an unauthorized military unit he called the U.S. Army/Military Special Forces Reserve unit, prosecutors said.
Deng allegedly gave his men uniforms and military IDs that they thought were real.
Officials said he even made up an office to look like a training facility and put his recruits through drills.
The recruits allegedly paid Deng hundreds of dollars each.
Deng was arrested by agents with the FBI and U.S. Department of Defense on a felony complaint filed Monday, officials said. He was being held on $500,000 bail.
Deng was charged with 13 counts of theft by false pretenses, manufacturing deceptive government documents and counterfeit of an official government seal, prosecutors said. He faces more than eight years in state prison if convicted.
The Associated Press contributed to this report.