Two key issues: parallelism and ambiguity.
...that local witnesses are
1. difficult to locate
2. reticent
3. suspicious of strangers
...is the correct ||
"they" in D/E are ambiguous ...is 'they' referring to the authorities or the local witnesses?
Federal authorities involved in the investigation have found the local witnesses are difficult to locate, reticent, and are suspicious of strangers.
(A) the local witnesses are difficult to locate, reticent, and
are X
(B) local witnesses to be difficult to locate, reticent, and
are X
(C) that local witnesses are difficult to locate, reticent, and
CORRECT(D) local witnesses are difficult to locate and reticent, and
they are X
(E) that local witnesses are difficult to locate and reticent, and
they are X
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"Do not pray for an easy life, pray for the strength to endure a difficult one." - Bruce Lee