I think one of the devs had a nightmare and decided to work through his issues by designing this guy. He’s half surfer-dude, half Hammer House of Horror pendulum-axe.
When you fight him, he rarely inflicts any damage, and if you hit him hard enough he falls off his chain and lies on the floor like a beached whale, pathetically grasping for his swinging chain so he can climb back up again.
He makes me think of the man-pig scene from Lindsay Anderson’s O Lucky Man
Which absolutely freaked me out when I was kid.
I always imagine him crying out to the party “Help me, help me!” but all they can see is a monster. 
Yes I think he is an experiment of Hojo’s, something humorously lighthearted that he made as a break from the Jenova Project. He’s probably a simple backpacker who wandered into the Shinra Mansion thinking it was the local youth hostel.