Yee is charged with six counts of depriving the public of honest services and one count of conspiracy to traffic in guns without a license. He and 25 other men are named in the criminal complaint filed this week.
Court documents say Yee or one of his campaign staffers accepted at least $42,800 in cash or campaign contributions from undercover FBI agents in exchange for carrying out agents' requests. He is also accused of trying to help an undercover agent obtain weapons from a Muslim rebel group.
The FBI served a number of arrest and search warrants in the San Francisco area Wednesday morning. A second man, Raymond Chow, also known as "Shrimp Boy," who heads a fraternal organization in San Francisco's Chinatown, was also arrested, FBI spokesman Peter Lee said.
Yee performed "official acts" in exchange for donations from undercover FBI agents, as he sought to dig himself out of a $70,000 debt incurred during a failed San Francisco mayoral bid, according to court documents.
Yee is also accused of accepting $10,000 in January 2013 from an undercover agent in exchange for his making a call to the California Department of Public Health in support of a contract under consideration with the agency.
Federal officials also accuse Yee of conspiracy to deal firearms and wire fraud.
Yee was held on $500,000 bail after appearing handcuffed in shackled in federal court Wednesday afternoon.
The FBI searched Yee's senate office, Mark Hedlund, spokesman for Senate President Pro Tem Darrell Steinberg, confirmed.
"We're hoping for more as we go through the day," he said.
Steinberg (D-Sacramento) said he had no comment and did not know anything about the investigation.
If Yee is indicted, his candidacy for secretary of state may be in jeopardy. He currently represents western San Francisco and much of San Mateo County.
It also threatens the Democrats' ability to restore the state senate to super majority, which has already suffered the loss of two lawmakers on paid leaves of absence to deal with criminal charges.
The Associated Press contributed to this report.