The Third Circuit has affirmed the denial of naturalization for an applicant who committed fraud to obtain his permanent residence. The court found that he was never lawfully admitted to permanent residence. In addition, although the 5 year statute of limitations on rescission proceedings protected him from deported for the fraud or from losing his residence, it did not retroactively cure that the residence was not lawfully granted.
The full text of Koszelnik v. Attorney General can be found here: