The worries focus on methods that produced a huge rise in profits last year, Mediaset's cash position, depreciation of TV and film rights, inter- company dealings with parent Fininvest and a possible back-tax liability.
They emerge from a close reading of a report issued by Morgan Stanley's European Research Department, issued on 7 June, three days before the prospectus was approved by the Italian stock exchange commission.
The Independent on Sunday understands, however, that worries go wider following the arrest in mid-May of Alfredo Zuccotti, the Fininvest executive who provided the basic information for the prospectus. He is currently under house arrest in Italy.
Morgan Stanley was not available for official comment yesterday. But its private concerns have also been heightened by the testimony of two accountants from auditors Arthur Andersen, leaked to last week's L'Espresso news magazine, which suggested they were not fully aware of all dealings with Mr Berlusconi's sprawling offshore empire.
Last week, the Independent on the Sunday exposed the offshore web and the key part played by lawyer David Mills in setting up many of the firms. Mr Mills is the husband of Labour MP Tessa Jowell and brother-in-law of Barbara Mills, the Director of Public Prosecutions.
Morgan Stanley's research report was circulated to potential European investors and raised crucial warning signals in a rare showing of scepticism over a firm its corporate finance arm is sponsoring.
Apart from the risk that Mediaset may not be allowed to continue to run its three domestic TV channels, the report raises deeper questions. Essentially, it shows, in the words of one Italian banker, how Mr Berlusconi is attempting to "have his cake and eat it".
The flotation will not only raise more than $600m (pounds 390m), help his political career, and pay off Fininvest's debts but will also provide him with further opportunities for making money through inter-company dealings. It also leaves him in effective control, as Fininvest's stake will not fall below 47.9 per cent.
Mediaset's huge profit rise to nearly L455bn (pounds 200m) was, it points out, largely due to reductions in the depreciation and tax. It was boosted by the hiving off to Fininvest of doubtful debts and an extraordinary gain on the sale - again to Fininvest - of a contract with pay TV channel Telepiu. The report reveals that the interest in Telepiu - and Spanish firm Telecinco - may well be bought back by Mediaset at a big profit to Fininvest.
Also significant, in the light of Italian magistrates' inquiries into the secret offshore companies, is the conclusion that their use may lead to a large back-tax liability.
The prospectus indicates that could be in excess of L500bn (pounds 215m), more than a year's profits. This is covered by a Fininvest indemnity, but there is always the possibility that Mr Berlusconi might not pay.
The main offshore buyer of film and TV rights for Mr Berlusconi was a British Virgin Island company called Principal. It resold to other offshore firms, possibly including a Maltese firm, Summercast, to minimise tax.
In the run-up to flotation, however, arrangements were changed and Principal was no longer used. The Mediaset prospectus merely reveals that in December, 1994 another Maltese company, International Media Services, was formed to handle the buying, through unnamed "intermediary companies".
Meanwhile, the Milan investigation continues, with the focus on the Jersey company All Iberian, which was used - among other things - to provide the secret finance to partners in Telepiu. Italian investigators were in London last week to prepare for a judicial review over whether papers seized at the offices of Edsaco, of which Mr Mills is now a director, should be sent to Italy.
In Milan it emerged that Mr Berlusconi's criminal lawyer had asked magistrates not to file certain documents with the court until after 1 July, fearing publicity would jeopardise Mediaset's flotation.Reuse content