Greenlight's Einhorn says shorting Moody's

* Greenlight Capital's Einhorn says shorting Moody's stock

* Greenlight says credit ratings lost credibility

* Einhorn says Moody's has negative net worth $900 mln

* $7.2 mln Allied Capital short-sale gain goes to charity

By Joseph A. Giannone

NEW YORK, May 28 (Reuters) - Hedge fund manager David Einhorn, who questioned the health of Lehman Brothers four months before its collapse, is betting that shares of Moody's Corp (MCO.N) will fall because he believes the market no longer gives its ratings any credit.

Einhorn, whose Greenlight Capital managed $5 billion, said on Wednesday the parent of Moody's Investors Service squandered the value of its business after giving perfect AAA ratings to now-fallen giants like struggling insurer AIG (AIG.N), nationalized mortgage banker Fannie Mae (FNM.N) and bond insurer MBIA Inc (MBI.N).

"If your product is a stamp of approval where your highest rating is a curse to those that receive it, and is shunned by those who are supposed to use it, you have problems," Einhorn told some 1,200 hedge fund executives at the annual Ira Sohn Investment Research Conference.

Moody's, whose shares were down nearly 5 percent in premarket trade, was not immediately available for comment.

Einhorn contends that investors have learned not to rely on Moody's, which for years has been criticized because it earns fees from the companies it rates. And after the mortgage market melted down in 2007, Moody's came under fire for giving top grades to bonds and derivatives backed by subprime loans.

"The truth is that nobody I know buys or uses Moody's credit ratings because they believe in the brand," he said at the conference, which raises funds for the treatment and cure of pediatric cancer. "They use it because it is part of a government-created oligopoly and, often, because they are require to by law."

Moody's largest shareholder, Warren Buffett of Berkshire Hathaway Inc, has said he does not rely on credit ratings, Einhorn said.

Yet Einhorn noted equity investors still believe in the agencies. Moody's shares trade at 19 times estimated earnings, he said, though he said the company has a negative net worth of $900 million.

Moody's had long been a favorite among investors because the limited number of firms approved by the U.S. government to rate debt lets these firms generate fat profit margins. McGraw-Hill Cos Inc's (MHP.N) Standard & Poor's and Fitch Ratings are Moody's rivals.

Immediately after his presentation, Einhorn told Reuters he began thinking about Moody's and the quality of credit ratings in 2002, when a fellow activist William Ackman started shorting MBIA. He declined to say when he began shorting Moody's, only noting it was a "considerable" amount of time ago.

Regulators and lawmakers for years talked about reforming the ratings system, questioning the issuer-funded business model that critics say conflicted with the interests of investors who buy company debt, municipal bonds or asset-backed securities. Einhorn called for sterner measures.