“Gifts that come to me, I regularly, diligently report them in the “Statement of Economic Interests’ [report] that are done annually," said McDonnell. "But, gifts that come to other family members, under current law, are not reportable.”

McDonnell says he has repaid the nearly $125,000 in loans from Williams and that his daughter has paid back the check Williams sent for wedding expenses. Another McDonnell family member returned money given to her by Williams. The governor also said the Rolex watch was being returned.

However, a federal investigation is reported to be underway of Governor McDonnell and Jonnie Williams for possible legal violations, including the improper exchange of favors. The governor strongly denies any such deal.

He said, “Neither Mr. Williams, nor Star Scientific, has received any special benefit at all from the state, nor has any other company.

At the University of Richmond, political science professor Dan Palazolo says that what statehouse watchers have been waiting for is the results of the federal investigation. And that McDonnell’s political future may hinge on what happens.

“The most important issue upcoming is the FBI report, and whether there is an indictment," Palazolo said. "If there is no indictment, then I think that Bob McDonnell kind of survives. If there is an indictment, then things get dragged on.”

Virginia’s capitol is now preparing for the inauguration in January of Governor McDonnell’s successor, Democrat Terry McAuliffe. McAuliffe has made clear he will seek tighter controls on gifts both to the governor and to family members.