From the outright division between legitimate direct marketing and illegal pyramid schemes in the “Regulations on the Prohibition of Multi-level Marketing Schemes” and the “Regulations on the Administration of Single-level Marketing” to the addition of the crime of "organizing or leading fraudulent pyramid schemes activities" in the Seventh amendment to the Criminal Law, China's legislative regulation of pyramid schemes has undergone a transition from solely administrative means to supplemented criminal regulation. With the advent of the Internet era, online fraudulent pyramid schemes has undergone some new changes in its business model, such as the cloud-based hierarchical compensation system, virtual goods and services, and scroll-based mechanisms, posing significant challenges to judicial and law enforcement efforts in combating pyramid schemes and regulating direct marketing. Nonetheless, the fraudulent nature of pyramid schemes in recruiting members and collecting entry fees remains unchanged, and their uncontrollability continues to challenge legal order. In determining the punishability of pyramid schemes activities, the substantive review standard should be applied, distinguishing between administrative violations involving actual sales of goods supplemented by team-based compensation methods and the elements constituting the crime of organizing or leading fraudulent pyramid schemes activities.