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Gibbons represented District 23, later renumbered as District 25 (Washoe County), in the Nevada Assembly from 1988 to 1994 (with a short intermission due to military service in 1991). Gibbons won his first election with approximately 64% of the vote and thereafter faced no opposition due to the heavy Republican lean of the district. During this time he and his Nevada Air National Guard unit was called to active service in the U.S. Air Force for the Gulf War. During this period, he served as a pilot and Flight Leader flying the RF-4C Phantom II reconnaissance aircraft. During the conflict, he was awarded the Distinguished Flying Cross for extraordinary achievement while participating in a mission in which he flew his unarmed aircraft on a reconnaissance mission to acquire politically sensitive imagery of enemy targets in Kuwait.
While working as a pilot for Delta Air Lines and serving in the Nevada Assembly, Gibbons ran for Nevada governor in 1994. As the Republican nominee, he lost to Democratic incumbent Bob Miller, having received 156,875 votes to Miller's 200,026.
In 1996, Barbara Vucanovich, the only representative that the 2nd District had known since Nevada was split into districts in 1983, announced her retirement. Gibbons won the Republican primary—the real contest in this heavily Republican district—and breezed to victory in November. He was reelected four times with no substantive opposition, including a 1998 run in which he faced no major-party opposition.
Gibbons served as vice chairman of the House Resources Committee, and he was a member of the Armed Services Committee, the Homeland Security Committee and the Permanent Select Committee on Intelligence. His long-time congressional Chief of Staff, Michael Dayton, was replaced in 2002 by legislative director Robert Uithoven. Uithoven served on Gibbons' staff for many years, including four years as chief of staff. He later served as campaign manager for Gibbons' successful 2006 Gubernatorial campaign. Uithoven was not given a gubernatorial position. His predecessor, Michael Dayton, was named as the governor's top aide.
Gibbons announced in late 2004 that he would not run for a sixth term in the U.S. House of Representatives in 2006, instead opting to run for Governor of Nevada. Gibbons won the August 15, 2006, Republican primary handily, defeating state senator Bob Beers and Lieutenant Governor Lorraine Hunt.
As Gibbons was campaigning for governor in October 2006, it was brought to light that more than ten years earlier, his wife Dawn had employed Martha Patricia Pastor Sandoval, a then-illegal immigrant from Peru, as a housekeeper and babysitter. Since the Nannygate matter of 1993, politicians have been deeply concerned about the impact of such revelations on their careers.
Dawn, who had become a member of the Nevada Assembly in 1998, denied the allegations in 2006, claiming that Sandoval had merely been a friend who had helped out around the house and was given clothing and household goods, but was not an employee. An employment contract between Dawn Gibbons and Sandoval, however, appeared to disprove that assertion, as it clearly laid out the terms and conditions of Sandoval's hiring. Documents filed during Sandoval's 1988 application for working papers also contradicted earlier statements by Dawn Gibbons that the family had not known that the woman was in the United States illegally.
Sandoval stated that she was employed from approximately 1987 to 1993, four years before Gibbons left for Washington in 1997, after his 1996 election as a Congressman and five years before Dawn Gibbons became a state legislator. Sandoval also stated that she was asked to hide in the basement and refrain from answering doors at certain times in order to ensure that her illegal status did not become public knowledge and jeopardize Gibbons' political career.
In 1995, Dawn Gibbons filed a police complaint against Sandoval, alleging that she was attempting to extort money by threatening to go to the media with a story involving her illegal employment. Jim and Dawn Gibbons did not pursue the matter further.
In response to the 2006 revelations, Jim Gibbons' campaign issued a statement accusing Democratic candidate Dina Titus of fomenting the controversy to distract from the real issues of the race, but did not issue a denial of Sandoval's claims.
In October 2006, near the conclusion of his successful campaign for governor, a woman accused Gibbons of attempted sexual assault in a parking garage. Gibbons claimed he was helping her to her car. They both admitted to drinking alcohol at McCormick and Schmick's restaurant in Las Vegas.
In the initial aftermath of the event, Clark County Sheriff Bill Young, a Republican and long time supporter and donor of Gibbons' gubernatorial campaign, cited lack of evidence in the case and refused to bring evidence of the attack to the District Attorney. The accuser did not initially want to pursue pressing charges, saying she just wanted "to be left alone." But the Las Vegas Metropolitan Police Department was forced to open the case after inquiries by the Las Vegas media, the Las Vegas Review-Journal and the Las Vegas Sun which also drew controversy by releasing the woman's name and thrust her into the public eye.
She later said she was being pressured to not talk to the police about the incident by people close to Gibbons. In fact, the Gibbons campaign hired a private investigator to talk to the woman shortly after the incident occurred.
The evidence was given to Clark County District Attorney David Roger, a Republican, who had also donated to the Gibbons campaign. Criminal charges were never filed in the case.
Gibbons' gubernatorial campaign manager, Robert Uithoven, speculated in an e-mail to Gibbons' supporters that Dina Titus, Gibbons' opponent, hired the woman to entice Gibbons. Titus retorted that to do this she would have had to control where Gibbons went, who he was with, and even the weather (Gibbons claimed he was helping the woman to her car in part because of the weather).
By 2009, the alleged victim had filed a civil suit against Jim Gibbons, specifically alleging battery, false imprisonment and second-degree kidnapping as well as deceit about the episode. The lawsuit was settled in July 2013 for $50,000.
On November 1, 2006, The Wall Street Journal published a story stating that Gibbons had earmarked several millions of dollars to a company owned by Warren Trepp, the former chief bond trader for Michael Milken at the height of his junk bond trading period at Drexel Burnham Lambert. The Journal also said that Gibbons had directed additional funds to a pre-existing government contract with Trepp's startup company. The report noted that Trepp had paid for a $10,000 cruise for Gibbons and his wife, which Gibbons failed to report in his U.S. House of Representatives ethics filings, and $100,000 in campaign contributions. Dennis L. Montgomery, a former Trepp business partner, claimed that Gibbons was also given gambling chips – convertible into cash – and cash directly.
On February 15, 2007, the Journal reported that Gibbons was under federal investigation for allegedly accepting unreported gifts and/or payments from Trepp in exchange for official acts while he served in Congress (1997–2007).
According to reports, on March 22, 2005, days before Trepp and his wife left for the Caribbean cruise with Gibbons and his family, Jalé Trepp, Warren's wife, sent a reminder to her husband. It said, "Please don't forget to bring the money you promised Jim and Dawn (Gibbons)." Minutes later, Trepp responded, "Don't you ever send this kind of message to me! Erase this message from your computer right now!"
The ethics probe into Gibbons expanded to include another company that paid Gibbons' wife Dawn $35,000 in consulting fees in 2004, while Gibbons helped the company receive a no-bid federal contract.
The U.S. Attorney for Nevada at time of the investigation was Republican Daniel Bogden, who had been appointed by Republican President George W. Bush in 2001. Bogdan was one of seven federal prosecutors dismissed by the Bush in December 2006 without explanation.
In the general election he faced Democratic nominee Dina Titus, who was the Minority Leader in the Nevada State Senate. Gibbons received 278,984 votes to Titus's 255,675. Titus won Clark County, Nevada's most populous, but Gibbons won every other county. Gibbons called Titus "an admirable opponent", although Titus declined to echo his sentiments, saying "We disagree on basic policies, and neither one of us is going to change our minds for the other".
Gibbons resigned his House seat on New Year's Eve, and was sworn in as governor just after midnight on New Year's Day.
Gibbons was the subject of numerous controversies, both professional and personal, causing speculation that he would not seek re-election for a second term as governor. However, Gibbons did file as a candidate for re-election in March 2010. On June 9, 2010, he lost his bid for nomination in the Republican primary to former federal judge Brian Sandoval—who went on to win the general election and become the 29th governor of Nevada.