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Einhorn's Arbitrage Skills Tested With Vodafone (Update 2)

A heating of Vodafone's M&A prospects comes at a time when many Greenlight Capital investments take the spotlight.

Greenlight has maintained a short trade in rating agency Moody's (MCO), which cost the fund its largest short portfolio loss in 2012. That investment and a newly opened short against McGraw-Hill (MHP), owner of Standard & Poor's may yet payoff as the Department of Justice pursues fraud charges related to mortgage bond ratings.

Escalating scrutiny on the credibility of pre-crisis mortgage bond ratings could also throw Einhorn in direct contest with Warren Buffett of Berkshire Hathaway, who remains one of Moody's largest shareholders.

Einhorn may also have to address previously disclosed short positions such as a backfired trade against materials giant Martin Marietta (MLM), which has risen sharply since Einhorn said the company's earnings would suffer from a withdrawal of government stimulus.

For now, Einhorn may not have picked the biggest merger in history as a first notable arbitrage trade. Still, the increasingly vocal hedge funder's investment in Vodafone may eventually bear fruit for Greenlight in the event of a Verizon Wireless deal.

-- Written by Antoine Gara in New York.

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