Reading through the Wikia entry, it just looks like good old corruption.
At some point in 2004, Michael met FIB agent Dave Norton. Fearing for his family's safety, Michael made a clandestine agreement with Norton to cut ties with Trevor and Brad in exchange for the ability to disappear and start a new life. By paying Norton a monthly five-figure amount, Norton would relocate Michael and his family to Los Santos and provide them with new identities to start a new life. By accepting the deal with the FIB, Michael informed Norton of their upcoming robbery in Ludendorff, where Michael would pretend to be shot by Norton, while Norton would actually kill Trevor and arrest Brad. The plan would favor both Michael and Norton, whereas Michael will walk away with a clean slate, Norton would be given a career boost for taking down the supposed "Most Wanted Man in America".
The North Yankton police wasn't involved (and shouldn't have been?) and a lot of things went tits up.